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How is the method superior to the payback method
Obie Ondricka
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What are the disadvantages of the discounted payback period?
It's not a direct measure of a project's contribution to stockholder's wealth. You may reject project's that should be accepted when using the NPV analysis (best method used for determining whether or not a project is accepted in Capital Budgeting). Discounted Payback Period AdvantagesConsiders the time value of money Considers the riskiness of the project's cash flows (through the cost of capital) Disadvantages No concrete decision criteria that indicate whether the investment increases the firm's value Requires an estimate of the cost of capital in order to calculate the payback Ignores cash flows beyond the discounted payback periodYounes Aitouazdi: University of Houston Downtown
Advantage and disadvantage of NPV what is the advantage and disadvantage of Net Present Value Method?
Advantages: a. It will give the correct decision advice assuming a perfect capital market. It will also give correct ranking for mutually exclusive projects. b. NPV gives an absolute value. c. NPV allows for the time value fo the cash flows. Disadvantages: a. It is very difficult to identify the correct discount rate. b. NPV as method of investment appraisal requires the decision criteria to be specified before the appraisal can be undertaken.
How do you calculate payback period using bail-out method?
Initial Net Investment / (Annual expected cash flow + salvage value)
Limitatios of 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.
How do you you calculate payback without knowing how much was invested?
When considering, payback as in retribution, one should consider the consequences of said payback. One should also consider how the consequences of said payback will directly and indirectly effect all players. Never forget to figure into your calculations the possibility of a boomerang effect. Contemplate a plan "B" should payback not have the desired effects.
Why is the NPV method superior to payback method?
How is the method superior to the payback method
Why is the NPV approach often regarded to be superior to the IRR method?
Why is the NPV approach often regarded to be superior to the IRR method?
Disadvantages of using roi payback method npv and irr and average profits?
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.
Which investment rule may not use all possible cash flow in its calculations npv payback period or irr?
payback period
What are the techniques used to make capital budgeting decisions in your organisation?
discuss the various methods adopted for a capital budgeting decision.
What are the weaknesses of the payback method?
the payback method ... is a method to evaluate the project in capital budgeting ... or simply in a long term dicision making for the entity .and because it is a long term in nature ..... the risk is high ... by evaluatining methods ... we try to reduce the uncertinity ... one of the methods ...is payback method . the disadvantage of the payback method is ...it does not concern with the time value of money theory ....the second one is ...it ignore the incash flow and the outcash flow of the project , after the payback period .
Merits and demerits of net present value?
Advantages:With the NPV method, the advantage is that it is a direct measure of the dollar contribution to the stockholders.With the IRR method, the advantage is that it shows the return on the original money invested.Disadvantages:With the NPV method, the disadvantage is that the project size is not measured.With the IRR method, the disadvantage is that, at times, it can give you conflicting answers when compared to NPV for mutually exclusive project.BY SHARANYA NV
What is the difference between payback and discounted payback?
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.
Investment appraisal techniques?
IRR, NPV, DCF are the main Investmetn Appraisal Techniques.
The internal rate of return method is like the NPV method a discounted cash flow technique True False?
true
What is the advantage and disadvantage of discounted payback method?
we only know the disadvantages: The cash flows beyond the payback period are ignored..
Discounted payback method?
A discounted payback method is a formula that is used to calculate how long to recoup investments based on the discounted cash flows of the investment. It is a variation of payback period or the time it takes to recover a project investment given the discounted cash flow it has.
