RatedrillDiscounted payback period
A time value of money problem from Ratedrill. Solve it with one answer box, with fresh numbers on every attempt and the formula, calculator keystrokes and Excel version in the worked answer, and it is checked the moment you submit.
The task
A project costs $20,000 and returns $13,000, $11,500, $10,500 and $11,000 in years 1 to 4, earned evenly through each year. At a discount rate of 7.25%, what is its discounted payback period, to 2 decimals? Discount each year's cash flow as a year-end amount.
What this problem teaches
Discount each cash flow by (1 + r)^t first, then find when the running total of discounted flows covers the cost.
A hint if you get stuck
Discount each cash flow by (1 + r)^t first, then find when the running total of discounted flows covers the cost.
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