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
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 four projects' cash flows and using a discount rate of 10%, 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 | $10,000 | $15,000 | $8,000 | $18,000 | |||||
Year 1 | $4,000 | $7,000 | $3,000 | $10,000 | |||||
Year 2 | $4,000 | $5,500 | $3,500 | $11,000 | |||||
Year 3 | $4,000 | $4,000 | $4,000 | $ 0 |
Which projects that would have been accepted under payback period method will now be rejected under the discounted payback period method?(Select the best response.)
A.Project 2, project 4
B.
Project 1, project 3
C.
Project 1, project 2
D.None of them
Net present
value.
Quark Industries has a project with the following projected cash flows:
Initial cost: $230,000 Cash flow year one: $25,000 Cash flow year two: $79,000 Cash flow year three: $142,000 Cash flow year four: $142,000
|
|
a. Using a discount rate of
11%
for this project and the NPV model, determine whether the company should accept or reject this project.
b. Should the company accept or reject it using a discount rate of
14%?
c. Should the company accept or reject it using a discount rate of
19%?
a. Using a discount rate of
11%,
this project should be
Accepted or
rejected
.
(Select from the drop-down menu.)
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