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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.

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Answer #1

Discounted Payback period is better than simple payback period because it includes time value of money and discount rate.


Discounted payback period is always greater than pay back period. So if a project has targeted payback as 3 years.. The simple payback could be 2.5 years and discounted payback period is 3.5 years then the project would be accepted under simple payback and rejected under discounted payback method.


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