Discounted Payback Period – Graham Incorporated uses discounted payback period for projects
Discounted Payback Period – Graham Incorporated uses discounted payback period for projects under $25,000 and has a cut off period of 4 years for these small value projects. Two projects, R and S are under consideration. The anticipated cash flows for these two projects are listed below. If Graham Incorporated uses an 8% discount rate on these projects are they accepted or rejected? If they use 12% discount rate? If they use a 16% discount rate? Why is it necessary to only look at the first four years of the projects’ cash flows?
|Cash Flows||Project R||Project S|
|Cash flow year one||$6,000||$9,000|
|Cash flow year two||$8,000||$6,000|
|Cash flow year three||$10,000||$6,000|
|Cash flow year four||$12,000||$3,000|