304-ch5_SU17-II.ppt - 5.6 Payback Period Analysis Two forms...

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Blank & Tarquin: 5-th Edition Ch. 5 Authored By: Dr. Don Smith Texas A&M University 1 5.6 Payback Period Analysis Two forms for this method Discounted Payback Period (uses an interest rate Find the value of n p such that: Conventional Payback (does not use an interest rate) Payback is the period of time it takes for the cash flows to recover the initial investment 1 0 ( / , , ) p t n t t P NCF P F i t  
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Blank & Tarquin: 5-th Edition Ch. 5 Authored By: Dr. Don Smith Texas A&M University 2 5.6 Payback Period Analysis- Example Example 5.8 Machine 1: N=7 Machine 2: N=14 i = 15%
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Blank & Tarquin: 5-th Edition Ch. 5 Authored By: Dr. Don Smith Texas A&M University 3 5.6 Payback Method Summarized Avoid using this method as a primary analysis technique for selection projects Does not employ the time value of money Disregards all cash flows past the payback time period If used, can lead to conflicting selections when compared to more technically correct methods like present worth!
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Blank & Tarquin: 5-th Edition Ch. 5 Authored By:
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