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How do you calculate payback period for an asset?
assets value $200000and number of year five cash flow is 70000,80000, 90000,90000and100000.and depreciation are $40000 each year .find out payback period for each assets
How do you calculate a payback period?
The payback period is ascertained by calculating the number of years needed to recover the cash invested in a project, For example, an investment of 1000 provides a return of 200,300,500 in consecutive three years. Then total of return in 3 years will be equal to the original investment. Hence the payback period is three years.
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.
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
Which of these is needed to be able to calculate the frequency?
period
