Comparing Payback Period and Discounted Payback Period – Neilsen Incorporated is switching from Payback Period
$3.00
Comparing Payback Period and Discounted Payback Period – Neilsen Incorporated is switching from Payback Period to Discounted Payback Period for small dollar projects. The cut-off period will remain at 3 years. Given the following four projects cash flows and using a 10% discount rate, which projects that would have been accepted under Payback Period will now be rejected under Discounted Payback Period?
|
Cash Flows |
Project One |
Project Two |
Project Three | Project Four |
| Initial cost | $10,000 | $15,000 | $8,000 | $18,000 |
| Year One | $4,000 | $7,000 | $3,000 | $10,000 |
| Year Two | $4,000 | $5,500 | $3,500 | $11,000 |
| Year Three | $4,000 | $4,000 | $4,000 | $0 |