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Masulis Inc. is considering a project that has the following cash flow and WACC data. What is the project's discounted payback? WACC = 10% Year 0 1 2 3 4 Cash flows -$950 $525 $485 $445 $405 1.61 years 1.79 years 1.99 years 2.22 years 2.44 years

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beritop1089

Answer:

2.22 years

Explanation:

For discounted payback period, find the PV of each year's cashflow;

Year           PV of CF                  Net CF

0                 -950                           -950

1              525/1.1 = 477.2727         -472.7273

2           485/1.1² = 400.8264         -71.9009

3            445/ 1.1³ = 334.3351          262.4342

Discounted payback = last year with negative Net CF + (Absolute net CF that year/ PV of CF the following year)

= 2 +(71.9009/334.3351  )

= 2 + 0.215

= 2.22 years

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