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What is pay back period method of evaluating capital expenditure?
Payback period method evaluates any investing activity from how much money it will pay back and how much time it requires to payback in number of years.
Are accounting rate of return and payback period non discount cashflow methods?
YES
How do you calculate payback period with a depreciation value?
To calculate the payback period considering depreciation, first determine the initial investment and the annual cash flows generated by the investment. Subtract the annual depreciation expense from the cash flows to find the net cash inflow. Then, divide the initial investment by the net cash inflow to find the payback period. This gives you the time it takes for the investment to be recouped, factoring in the impact of depreciation on cash flows.
What is payback method on investment appraisal?
In payback period of investment appraisal method all cash inflows and outflows are analysed and find out that in how many years investment proposal will earn the invested money.
How do you solve salvage value in payback method?
In the payback method, salvage value is typically not included in the calculation, as this method focuses solely on the time it takes for an investment to recoup its initial cost through cash inflows. However, if the salvage value is significant and expected to be realized at the end of the project's life, it can be factored in by adding it to the final cash flow when assessing the total cash inflows. This adjustment may shorten the payback period, but it’s crucial to remember that the payback method does not consider the time value of money or cash flows beyond the payback period.
What is the formula for the payback period?
Formula for the Payback Period. Payback period = Initial investment / Annual Cash inflows
Adavntages of using payback period?
advantages of payback period?
What is meant by the 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.
Payback period versus discounted payback period versus net present value versus profitability index?
discounted payback period
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 is discounted payback period computed?
Payback period = Net Investment Annual cash returns
Criticism of payback period?
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.
Which investment rule may not use all possible cash flow in its calculations npv payback period or irr?
payback period
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.
When you are calculating payback period do you subtract the salvage value?
No, when calculating the payback period, you do not subtract the salvage value. The payback period focuses on the time it takes for an investment to generate cash inflows sufficient to recover the initial investment cost. The salvage value is typically considered in other analyses, such as calculating the net present value (NPV) or internal rate of return (IRR), but not in the payback period calculation.
What is the advantage and disadvantage of discounted payback method?
we only know the disadvantages: The cash flows beyond the payback period are ignored..
How to compute 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
