Question

Under what circumstances could payback and discounted payback be equal? And what are the drawbacks of...

Under what circumstances could payback and discounted payback be equal? And what are the drawbacks of these two methods?

How are normal and non-normal cashflows different?

Which capital budgeting method has the least drawbacks making it superior to other capital budgeting methods?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Payback and discounted payback are same when the discount rate is 0 percent.

Drawbacks:

1. Does not account for cashflows after the initial cash flow requirement is met. This implies if the initial cash outflow requirement is met with the inflow the rest are not considered.

2. It does not account for inflation.

3. Both have a cut of period and any inflow after that is not considered.

NPV has the least drawbacks which makes it superior. Reasons for the same:

1. Accounts for all the vashinflocas

2. Considers the discount factor

3. Accounts for inflation..

4. Helps in selecting projects on the basis of their return generated.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Required: Suppose you paid your old college finance professor to evaluate a project for you. If...
Required: Suppose you paid your old college finance professor to evaluate a project for you. If you would pay him regardless of your decision concerning whether to proceed with the project, should his fee for evaluating the project be included in the project's incremental cash flows? Required: Under what circumstances could payback and discounted payback be equal? And what are the drawbacks of these two methods? Required: How are normal and non-normal cash flows different? Required: Which capital budgeting method...
Under what circumstances could payback and discounted payback be equal? must be 250 words
Under what circumstances could payback and discounted payback be equal? must be 250 words
The Payback Period could be computed using the Simple Payback or the Discounted Payback methods, in...
The Payback Period could be computed using the Simple Payback or the Discounted Payback methods, in your opinion which do you think is better to use, and why? Give an example of how different the payback period method utilize will affect the selection of an alternative.
1. What is the difference between payback period and discounted payback period? Do you know any...
1. What is the difference between payback period and discounted payback period? Do you know any projects that used these two capital budgeting techniques?
1. What is the difference between payback period and discounted payback period? Do you know any...
1. What is the difference between payback period and discounted payback period? Do you know any projects that used these two capital budgeting techniques? 2. What are the reinvestment rate assumptions for NPV and IRR? 3. The U.S. economy is contracting this year. What can corporate capital spending signal to this issue?
What two pieces of information does the payback method provide that are absent from the other...
What two pieces of information does the payback method provide that are absent from the other capital budgeting decision methods?
Under what circumstances would a monopolistic firm be economically more efficient than a group of small,...
Under what circumstances would a monopolistic firm be economically more efficient than a group of small, competitive firms? If there are such monopolies, what are the drawbacks and how could they be corrected?
Under what circumstances would a monopolistic firm be economically more efficient than a group of small,...
Under what circumstances would a monopolistic firm be economically more efficient than a group of small, competitive firms? If there are such monopolies, what are the drawbacks and how could they be corrected? You may give an example to make your points more clear.
Explain in detail under what circumstances the Net Present Value (NPV) and Internal Rate of Return...
Explain in detail under what circumstances the Net Present Value (NPV) and Internal Rate of Return (IRR) could provide different decisions. Which method would you follow in the case of such inconsistent conclusions?
The decision process Before making capital budgeting decisions, finance professionals often generate, review, analyze, select, and...
The decision process Before making capital budgeting decisions, finance professionals often generate, review, analyze, select, and implement long-term investment proposals that meet firm-specific criteria and are consistent with the firm’s strategic goals. Companies often use several methods to evaluate the project’s cash flows and each of them has its benefits and disadvantages. Based on your understanding of the capital budgeting evaluation methods, which of the following conclusions about capital budgeting are valid? Check all that apply. For most firms, the...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT