Page 122 - Microsoft Word - 00 ACCA F9 IWB prelims 2017.docx

Chapter 6

Question 5

Discounted payback

A project with the following cash flows is under consideration:

t0 (10,000)

t1 4,000
t2 3,500
t3 3,000

t4 2,500

With a cost of capital of 10%, calculate the discounted payback period.

d.f 10% PV Cumulative

t0 (10,000) 1 (10,000) (10,000)
t1 4,000 0.909 3,636 (6,364)
t2 3,500 0.826 2,891 (3,473)

t3 3,000 0.751 2,253 (1,220)
t4 2,500 0.683 1,708 488

The payback period is 3 years + (1,220/1,708) years = 3.7 years

114