1 2 3 Chapter 9 - Section 3 The Discounted Payback The discounted payback period is similar to the payback rule except that we use the discounted cash flows in the calculation. Suppose we have a project with the following cash Haws and required return, What is the discounted payback period for the project? 6 9 20 11 12 33 + 0 1 2 3 4 5 Cash Now $ 30,000) 8,000 10,000 11,000 17,000 12.000 15 16 37 Required return Maximum payback (years 20% 3.5 19 20 22 23 24 25 26 27 PENBAR + D 1 2 3 4 5 Discounted cash flow 7 7 7 7 7 ? So we will use the same methods we previously tillred to calculate the payback period. The first calculation is 29 Cumulative discounted cash flow ? 7 30 31 32 33 34 35 06 37 0 1 2 3 4 5 7 ? Next, we will calculate the discounted payback period as a fractional number of years, which is: 39 Payback 40 calculation 0 12 1 43 2 44 3 45 4 16 5 7 48 And the discounted payback in a specific cell with the accept/reject decision is: 19 30 Discounted payback period Accept or reject? 32