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.
How is the method superior to 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 .
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.
Method of evaluating investment opportunities and product development projects on the basis of the time taken to recoup the investment. This period is compared to the required payback period to determine the acceptability of the investment proposal. In contrast to return on investment and net present value methods, the cash inflows occurring after the payback period are not included in this method. Formula: Payback period (in years) = Initial capital investment ÷ Annual cash-flow from the investment.
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.
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.
we only know the disadvantages: The cash flows beyond the payback period are ignored..
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.
How is the method superior to the payback method
How is the method superior to 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 .
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.
Method of evaluating investment opportunities and product development projects on the basis of the time taken to recoup the investment. This period is compared to the required payback period to determine the acceptability of the investment proposal. In contrast to return on investment and net present value methods, the cash inflows occurring after the payback period are not included in this method. Formula: Payback period (in years) = Initial capital investment ÷ Annual cash-flow from the investment.
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.
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.
payback period , it is to pay your period on time jajajaja