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Tags

#analyst-notes #cfa-level-1 #corporate-finance #reading-35-capital-budgeting #study-session-10

Question

CONS OF PAYBACK

- It [...] the payback period.
- It does not
**[...]**

Answer

ignores cash flows beyond

consider the time value of money.

consider the time value of money.

Tags

#analyst-notes #cfa-level-1 #corporate-finance #reading-35-capital-budgeting #study-session-10

Question

CONS OF PAYBACK

- It [...] the payback period.
- It does not
**[...]**

Answer

?

Tags

#analyst-notes #cfa-level-1 #corporate-finance #reading-35-capital-budgeting #study-session-10

Question

CONS OF PAYBACK

- It [...] the payback period.
- It does not
**[...]**

Answer

ignores cash flows beyond

consider the time value of money.

consider the time value of money.

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#### Parent (intermediate) annotation

**Open it**

It ignores cash flows beyond the payback period. Payback period is a type of "break-even" analysis: it indicates how quickly you can make enough money to recover the initial investment, not how much money

#### Original toplevel document

**Subject 3. Investment Decision Criteria**

establish a benchmark payback period. Reject if payback is greater than benchmark. Payback A = 1 + (1000 - 750)/350 = 1.7 years Payback B = 3 + (1000 - 100 - 250 - 450)/750 = 3.27 years Drawbacks: <span>It ignores cash flows beyond the payback period. Payback period is a type of "break-even" analysis: it indicates how quickly you can make enough money 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. Discounted Payback Period This

It ignores cash flows beyond the payback period. Payback period is a type of "break-even" analysis: it indicates how quickly you can make enough money to recover the initial investment, not how much money

establish a benchmark payback period. Reject if payback is greater than benchmark. Payback A = 1 + (1000 - 750)/350 = 1.7 years Payback B = 3 + (1000 - 100 - 250 - 450)/750 = 3.27 years Drawbacks: <span>It ignores cash flows beyond the payback period. Payback period is a type of "break-even" analysis: it indicates how quickly you can make enough money 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. Discounted Payback Period This

status | not learned | measured difficulty | 37% [default] | last interval [days] | |||
---|---|---|---|---|---|---|---|

repetition number in this series | 0 | memorised on | scheduled repetition | ||||

scheduled repetition interval | last repetition or drill |

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