Do you want BuboFlash to help you learning these things? Or do you want to add or correct something? Click here to log in or create user.



#analyst-notes #cfa-level-1 #corporate-finance #reading-35-capital-budgeting #study-session-10
The payback is often used as one indicator of a project's risk.
If you want to change selection, open original toplevel document below and click on "Move attachment"

Parent (intermediate) annotation

Open it
ect's risk and liquidity because it shows how long the invested capital will be tied up in a project and "at risk." The shorter the payback period, the greater the project's liquidity, the lower the risk, and the better the project. <span>The payback is often used as one indicator of a project's risk.<span><body><html>

Original toplevel document

Subject 3. Investment Decision Criteria
y to recover the initial investment, not how much money you can make during the life of the project. It does not consider the time value of money. Therefore, the cost of capital is not reflected in the cash flows or calculations. <span>Discounted Payback Period This is similar to the regular payback method except that it discounts cash flows at the project's cost of capital. It considers the time value of money, but it ignores cash flows beyond the payback period. Again, assume the cost of capital for the firm is 10%: Discounted PaybackA = 2 + (1000 - 682 - 289)/113 = 2.26 years Discounted PaybackB = 3 + (1000 - 91 - 207 - 338)/512 = 3.71 years The payback provides an indication of a project's risk and liquidity because it shows how long the invested capital will be tied up in a project and "at risk." The shorter the payback period, the greater the project's liquidity, the lower the risk, and the better the project. The payback is often used as one indicator of a project's risk. Average Accounting Rate of Return (not required) This is a very simple rate of return: Its only advantage is that


Summary

statusnot read reprioritisations
last reprioritisation on suggested re-reading day
started reading on finished reading on

Details



Discussion

Do you want to join discussion? Click here to log in or create user.