Find out the discounted payback period


Problem:

Mr. CFO is evaluating 2 different projects. One requires an initial investment (cash outlay) of $200,000. Thereafter, it is expected to generate annual cash flows of $75,000/year for 6 years. The appropriate discount rate is 8%. Project B requires an initial investment of $1 million. Thereafter, it will produce annual cash flows of $500,000, for the next 4 years. The appropriate discount rate is 10%.

What is the NPV for each project? What is the IRR? What is the payback period? What is the discounted payback period?

Which project would you accept, if either? Why or why not?

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Finance Basics: Find out the discounted payback period
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