Payback period.

Given the cash flow of two projectsA and Band using the payback period decision model, which project(s) do you accept and which project(s) do you reject if you have a

3-year cutoff period for recapturing the initial cash outflow? For payback period calculations, assume that the cash flow is equally distributed over the year.

Cash Flow	A		B
Cost	$15,000		$95,000
Cash flow year 1	$7,500		$28,500
Cash flow year 2	$7,500		$38,000
Cash flow year 3	$7,500		$9,500
Cash flow year 4	$7,500		$19,000
Cash flow year 5	$7,500		$0
Cash flow year 6	$7,500		$0

What is the payback period for project A? nothing

years (Round to one decimal place.)

Discounted payback period.

Becker, Inc. uses the discounted payback period for projects costing less than $25,000 and has a cutoff period of four years for these small-value projects. Two projects, R and S, are under consideration. Their anticipated cash flows are listed in the following table. If Becker uses a discount rate of 8% on these projects, are they accepted or rejected? If it uses a discount rate of

12%? A discount rate of

16%?

Why is it necessary to look at only the first four years of the projects' cash flows?

Cash Flow	Project R		Project S
Initial Cost	$24,000		$18,000
Cash flow year 1	$6,000		$9,000
Cash flow year 2	$8,000		$6,000
Cash flow year 3	$10,000		$6,000
Cash flow year 4	$12,000		$3,000

With a discount rate of 8%, the cash outflow for project R is: (Select the best response.)

With a discount rate of

8%,

the cash outflow for project R is: (Select the best response.)

A.

not fully recovered in four years, so reject.

B.

fully recovered in 5 years, so accept.

C.

fully recovered in 3 years,so reject.

D.

fully recovered in 4 years, so accept.