advantages of payback period?
Disadvantages of Payback Method: It may lead to excessive investment in short term projects. The choice of any cut-off payback period by an organization is arbitrary.
The payback period is easy to use, compute and it does give a certain amount of information concerning risk. The disadvantages though include the fact that it ignores the profability of an investment and it does not take into account time value of money (TVM). Amber
Simple payback method do not care about the time-value of money principle while discounted payback period do take care of this principle in calculation.
To calculate the project's discounted payback period, you need to first determine the present value of each cash flow using the given Weighted Average Cost of Capital (WACC) as the discount rate. Then, you can accumulate these discounted cash flows until they equal the initial investment. The discounted payback period is the time it takes for this accumulation to occur. If you provide the specific cash flow amounts and the WACC, I can help you calculate the exact discounted payback period.
What is the payback period of the following project? Initial Investment: $50,000 Projected life: 8 years Net cash flows each year: $10,000
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Formula for the Payback Period. Payback period = Initial investment / Annual Cash inflows
discounted payback period
Something is meant by the payback period. It is the length of time taken to recover the cost of an investment. This is what is meant by the payback period.
- the payback period is to dependent on cash inflows which are hard to predict. - The payback period only considers revenue, does not consider profits.
Payback period = Net Investment Annual cash returns
Disadvantages of Payback Method: It may lead to excessive investment in short term projects. The choice of any cut-off payback period by an organization is arbitrary.
* Adds Flavor * Preserves Food for long periods of time
The basic criticisms of the payback period method are that it does not measure the profitability of an investment and it does not consider the time value of money.
payback period
The payback period is easy to use, compute and it does give a certain amount of information concerning risk. The disadvantages though include the fact that it ignores the profability of an investment and it does not take into account time value of money (TVM). Amber
Simple payback method do not care about the time-value of money principle while discounted payback period do take care of this principle in calculation.