Posted by Lindsey on Wednesday, July 29, 2009 at 7:41am.
Masulis Inc is considering a project that has the following cash flow and WACC Data .what is the project discounted payback
WACC 10%
years 0 1 2 3 4
CASH FLOW 700 525 485 445 405

Finance ( NEED HELP BAD)  MathMate, Wednesday, July 29, 2009 at 9:38am
To calculate the discounted payback period, it is necessary to reduce the cash flow to the present value (year 0) by applying the given WACC (weighted average cost of capital). For year 1, we simply divide by 1.1. For year 2, we divide by 1.1², and so on.
Here is a tabulated version of the calculations. It is difficult to align the column heading, so they are given here:
1. Year
2. Cash Flow
3. Present value of Cash Flow, based on WACC of 10%
4. Cumulative present value of cash flow obtained by adding current year value to previous cumulative value.
0 700.00 700.00 700.00
1 +525.00 +477.27 222.73
2 +485.00 +400.83 +178.10
3 +445.00 +334.33 +512.43
4 +405.00 +276.62 +789.05
Note that the (+) signs have been added to align the columns properly, and have no other significance.
Conclusion, since the cumulative discounted cash flow goes from negative (222.73) to positive (+178.10) during year 1, we conclude that the discounted payback is approximately 19 months.
Answer This Question
Related Questions
 Finance  Thompson Stores is considering a project that has the following cash ...
 Finance ( Please help)  Warnock Inc is considering a project that has the ...
 Investing ( pease help)  Maxwell Feed & Seed is considering a project that has ...
 Finance  Houston Inc. is considering a project which involves building a new ...
 finance  Thompson stores is considering a project that has the following cash ...
 Corporate Finance  1. The Federal Reserve recently shifted its monetary policy...
 Finance  your company, Beta Corporation, is considering a new project which you...
 finance  Carlyle Inc. is considering two mutually exclusive projects. Both ...
 FINANCE  Tim recently invested $3,500 in a project that is promising to return ...
 finance  John Keene recently invested $3,500 in a project that is promising to ...
More Related Questions