Timeline Manufacturing Co. is evaluating two projects. The company uses payback criteria of three years or less.

Question:

Timeline Manufacturing Co. is evaluating two projects. The company uses payback criteria of three years or less. Project A has a cost of $912,855, and project B’s cost is $1,175,000. Cash flows from both projects are given in the following table. What are their discounted payback periods and which will be accepted with a discount rate of 8 percent?

Year	Project A	Project B
1	$ 86,212	$586,212
2	$313,562	$413,277
3	$427,594	$231,199
4	$285,552

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...