CA Inter P6 · Chapter 7 · Question 10 of 10
A project costs ₹ 3,00,000 and generates ₹ 1,40,000 a year for 3 years. The discount factors at 10% are 0.909, 0.826 and 0.751 for years 1 to 3. The discounted payback period is approximately:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) 2.54 years
Explanation
PV of inflows: year 1 = ₹ 1,27,260, year 2 = ₹ 1,15,640, year 3 = ₹ 1,05,140. Cumulative PV after 2 years = ₹ 2,42,900, leaving ₹ 57,100 to recover. Discounted payback = 2 + ₹ 57,100/₹ 1,05,140 = 2.54 years. Simple payback (3,00,000 / 1,40,000 = 2.14 years) ignores discounting.
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