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