CMA Study Group

Discounted payback period question

  • 1.  Discounted payback period question

    Posted 19 days ago
    Can you please assist how I should calculate the 20% discount of $40,000 cash inflow?


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    Anna Ayson
    Accountant
    Renton WA
    United States
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  • 2.  RE: Discounted payback period question

    Posted 19 days ago

    Dears,

     

    The discounted payback period refers to the sum of all net cash flows received along or less than the investment period which cover the initial investment (95,000)

    net cash flow

    rate

    discounted net cash flow

    remaining

    year0

    -            95,000

           1.00

    -                                     95,000

    -         95,000

    year1

                  40,000

       0.8333

                                           33,333

    -         61,667

    year2

                  40,000

       0.6944

                                           27,778

    -         33,889

    year3

                  40,000

       0.5787

                                           23,148

    -         10,741

    year4

                  40,000

       0.4823

                                           19,290

                 8,549

    year5

                  40,000

       0.4019

                                           16,075

               24,624

    year6

                  40,000

       0.3349

                                           13,396

               38,020

    year7

                  40,000

       0.2791

                                           11,163

               49,184

     the investment will be covered after more than 3 years and less than 4 years

    after 3 years we need to cover the remaining -10,741 from the available cash in the fourth year 19,290

    So, the payback period = 3 + (10,741/19,290) = 3.37 or 3.4  years

     

     

     

     

     

     

    Best regards,

    Mohammed Adly

    Head of Accounting Dept.&Deputy Admin Manager

     

    Mob.: +966 59 016 2368 & +201023776570

    mohammed.adly@...

     

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  • 3.  RE: Discounted payback period question

    Posted 19 days ago
    Dear Anna,

    Calculate the PV of each year's cash inflow.. Example1st year 1/1.12*40,000 = 35720. 2nd year 1/1.12^2*40,000=31,920 and so on..

    Then for calculating payback, add this discounted figures. The payback would be between 3 to 4 years.


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    Abdul Naser Parkar
    Analyst
    Al Nasr, Al Sadd Doha
    Qatar
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  • 4.  RE: Discounted payback period question

    Posted 19 days ago
    Correction..1/1.2*40,000 = 33,333 ( earlier used discount rate of 12% instead of 20%..)

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    Abdul Naser Parkar
    Analyst
    Al Nasr, Al Sadd Doha
    Qatar
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