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An investment project has the following discounted cash flows ($’000):
Year Discount rate
0% 10% 20%
0 (90) (90) (90)
1 30-27.3-25.0
2 30-24.8-29.8
3 30-22.5-17.4
4 30-20.5-14.5
30-5.1 -(12.3)
The required rate of return on investment is 10% per year.
What is the discounted payback period of the investment project?
? Less than 3.0 years
? 3.0 years
? Between 3.0 years and 4.0 years
? More than 4.0 yearsRevision Kit 12b.19 question..
please explain solution
Given that the required return is 10%, it is only the 10% column in the question that is relevant.
We need the number of years it takes to get back the original 90.
After three years they have received a total of 74.6.
After four years they have received a total of 95.1.Therefore they will have received 90 somewhere between 3 and 4 years.
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