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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 |
| Initial Cost | $24,000 | $18,000 |
| 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 |
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