Page 17 - FINAL CFA I SLIDES JUNE 2019 DAY 10
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Session Unit 10:
35. Capital Budgeting
Discounted Payback Period, p26
The discounted payback period uses the present values of the project’s estimated cash flows. It is the number
of years it takes a project to recover its initial investment in present value terms and, therefore, must be greater
than the payback period without discounting.
Example: Discounted payback method: Compute the discounted payback period for projects A and
B described in Table 5. Assume that the firm’s cost of capital is 10% and the firm’s maximum
discounted payback period is four years.
tanties
