What is the discounted payback period for project B?
So the project has $1,000 in initial costs and has a
present value earned in year 1 of $454.55. After year one there are still $545.45 left
to recover. Year 2 as a present value earned of $330.58 leaving $214.87 left to
recover after year 2. The present value of the
$214.87 so we know it will only take part of year 3 to recover the cash flows. To
compute the fraction of the year it will take we divide the remaining cost to recover
of $214.87 by the present value of the cash flows earned in year 3 of $225.39. This
tells us that it will take .95 of the third year. Therefore the discounted payback. Is 2.95
years.
What is the discounted payback period for project B?
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