Comparing payback period and discounted payback period. Nielsen, Inc. is switching from the payback period to the discounted payback period for small-dollar projects. The cutoff period will remain at three years. Given the following fourprojects' cash flows and using a discount rate of 8%, determine which projects it would have accepted under the payback period and which it will now reject under the discounted payback period. Cash Flow Project 1 Project 2 Project 3 Project 4 Initial Cost $12,000 $14,000 $8,000 $22,000 Year 1 $5,000 $7,000 $3,000 $10,000 Year 2 $5,000 $5,500 $3,500 $14,000 Year 3 $5,000 $4,000 $4,000 $ 0
Comparing payback period and discounted payback period. Nielsen, Inc. is switching from the payback period to the discounted payback period for small-dollar projects. The cutoff period will remain at three years. Given the following fourprojects' cash flows and using a discount rate of 8%, determine which projects it would have accepted under the payback period and which it will now reject under the discounted payback period. Cash Flow Project 1 Project 2 Project 3 Project 4 Initial Cost $12,000 $14,000 $8,000 $22,000 Year 1 $5,000 $7,000 $3,000 $10,000 Year 2 $5,000 $5,500 $3,500 $14,000 Year 3 $5,000 $4,000 $4,000 $ 0
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Comparing payback period and discounted payback
period.
Nielsen, Inc. is switching from the payback period to the discounted payback period for small-dollar projects. The cutoff period will remain at three years. Given the following fourprojects' cash flows and using a discount rate of
8%,
determine which projects it would have accepted under the payback period and which it will now reject under the discounted payback period.|
Cash Flow
|
Project 1
|
Project 2
|
Project 3
|
Project 4
|
|
|||
|
Initial Cost
|
$12,000
|
|
$14,000
|
|
$8,000
|
|
$22,000
|
|
|
Year 1
|
$5,000
|
|
$7,000
|
|
$3,000
|
|
$10,000
|
|
|
Year 2
|
$5,000
|
|
$5,500
|
|
$3,500
|
|
$14,000
|
|
|
Year 3
|
$5,000
|
|
$4,000
|
|
$4,000
|
|
$
0
|
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