The initial outlay or cost for a four-year project is $1,000,000. The respective cash inflows for years 1, 2, 3 and 4 are: $500,000, $300,000, $300,000 and $300,000. What is the discounted payback period if the discount rate is 10%?
A) About 2.67 years
B) About 3.35 years
C) About 3.67 years
D) About 4.50 years
Answer: B
Explanation: B) We first discount all after-tax cash inflows, which gives us after-tax cash inflows of $454,545.45, $247,933.88, $225,394.44 and $204,904.04. After three years, we will have paid back $927,873.77 leaving $72,126.23 to pay back in after-tax cash flows in the fourth year. Since we get $204,904.04 in the fourth year, the rule of thumb is to divide what is needed by the cash inflows we will get next period and add it to the number of previous periods of cash inflows, e.g., ($72,126.23 divided by $204,904.04) + 3. Doing this gives 3.352. Thus, the payback period is about 3.35 years.
You might also like to view...
Which of the following is a part of the three-part view of trust?
A. psychologically-based trust B. reward-based trust C. affect-based trust D. identification-based trust
Economies with per capita incomes in the low to middle range that are in a transition toward developed status are referred to as emerging market economies.
Answer the following statement true (T) or false (F)
Before agreeing to an interview, you should:
a. Ask the reporter which organization he or she works for b. Consult with professionals in your own organization c. Trust your instincts d. Find out who else is participating in the interview e. All of the above
The process of selecting sample members so that groups can be compared is known as _____.
A. simple random sampling B. opportunity sampling C. stratified purposive sampling D. convenience sampling E. accidental sampling