Exam Year 2006 May Q9

In question, it is given that the discount rate is 15%, but in solution calculations are done taking i = 15%. Shouldn't it be i = 13%?

Question is as follows:

Q9) A company ABC is considering investing in a project. The cost of project will be Rs.10 crore at the beginning of the first year. There are further costs at the beginning of second to fifteenth year. The cost at the beginning of second year will be Rs.1.5 crore and will increase every year thereafter at a rate of 5%.
The income will be Rs.3.5 crore at the end of each of first 5 years, increasing by Rs.50 lakh at the end of each of sixth to fifteenth year.

The company ABC sets a discount rate of 15% pa to evaluate this project.

(i) Explain what is meant by discounted payback period of a project (2)
(ii) Calculate net present value of the project (7)
(iii) Calculate the discounted pay back period for the project

 

why do you think it should be 13%? where does this come from?

 

d = 15%
d = i / (i+1)
hence, i = 13%

Am i incorrect?

 

Thank you. I had not considered it to be risk discount rate and indeed, my calculation was also incorrect.