answersLogoWhite

0

Simple to compute and it shows the number of years it takes to cover the cost.

Secondly, it provides some information on the risk of the investment.

And lastly it provides a crude measure of liquidity.

User Avatar

Wiki User

14y ago

What else can I help you with?

Continue Learning about Math & Arithmetic

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.


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.


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.


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


Is ease of use the primary advantage of payback analysis?

Yes, ease of use is one of the primary advantages of payback analysis. This method allows decision-makers to quickly assess the time it will take for an investment to repay its initial cost, making it straightforward and intuitive. Its simplicity facilitates rapid comparisons between different projects, although it may overlook factors like cash flow beyond the payback period and the time value of money. As a result, while it's useful for initial assessments, it should be complemented with other financial metrics for a comprehensive evaluation.

Related Questions

Adavntages of using payback period?

advantages of payback period?


What is a payback period?

payback period , it is to pay your period on time jajajaja


What is the formula for the payback period?

Formula for the Payback Period. Payback period = Initial investment / Annual Cash inflows


Payback period versus discounted payback period versus net present value versus profitability index?

discounted 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.


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


What are the advantages of using payback period?

The payback period is easy to use, compute and it does give a certain amount of information concerning risk. The disadvantages though include the fact that it ignores the profability of an investment and it does not take into account time value of money (TVM). Amber


Advantage and disadvantage of payback?

There are a few different advantages and disadvantages of payback. Payback can help ensure that there is further action in a case for example.


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.