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Discuss the concept of payback period vs. discounted payback period. Also discuss the concept of Net...

Discuss the concept of payback period vs. discounted payback period. Also discuss the concept of Net Present Value (NPV) and why it is important for companies to understand this model. Remember to mention the value of this concept when different projects are under consideration, especially when they have unequal lives.

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Answer #1

Payback period refers to the number of years it will take to recover an investment made. It is calculating by dividing the initial investment by the cash inflow each year. Discounted payback period is payback period after considering the time value of money.

Net present value refers to the difference between discounted cash inflows and discounted cash outflows. It is important for companies to undertand this model in order to evaluate their investments properly. Especially when projects have unequal lives, different time values for cash inflows and outflows have to be considered to see the correct picture.

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