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Suppose an investment costs $420,000 and generates cash flows of $120,000 per year for the next 5 years. a) Calculate the discounted payback period using a discount rate of 8%. b) Calculate the discounted payback period using a discount rate of 16%. c) What is the payback period (undiscounted)? d) At what discount rate would the investment just pay off on a discounted basis at the end of its 5-year life? e) Will the payback period (undiscounted) change given a change in the discount rate? Is this a strength or weakness of the undiscounted payback period approach?

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Financial Management, Finance

Category:- Financial Management
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