Answer: B. $1,696,274
Explanation:
The discounted cashflows are;
Year 1 = 1,800,000/ (1 + 8%) = $1,666,667
Year 2 = 3,825,000/ (1 + 8%)² = $3,279,321
Year 3 = 1,575,000 / (1 + 8%)³ = $1,250,286
The initial investment is $4,500,000. The Discounted payback period fails to consider the cashflow after this has been repaid so the amount that the method does not recognize is;
= 1,666,667 + 3,279,321 + 1,250,286 - 4,500,000
= $1,696,274
