FOR INDIA'S BEST CA CS CMA VIDEO CLASSES CALL 9980100288 OR VISIT HERE
Take This Quiz & Predict Your Score in the coming CA CS or CMA Exam!
  • How important it is for you to pass the exam in this attempt?
  • What percentage of course you have finished well so far roughly?
  • How many hours you study in a day?
  • How many times you have revised the topics you have finished
  • Have you taken online or pen drive or live class from a renowned faculty?
  • What percentage of the classes you have watched?
  • Have you attempted mock tests or practice tests yet?
  • Are you planning to attempt mock tests conducted by external bodies- ICAI, ICSI, ICMAI or other institute?
  • How many tests you have taken?
  • Did you manage to finish the test papers on time?
  • Are you strictly following study material provided by the exam conducting authority such as ICAI/ICSI/ICMAI/Other Body?
  • How is your health in general?
  • How is your food habit?
  • Any interest in yoga or exercise or play sports regularly?
  • Planning to sleep well nights before the exams?
  • Planning to have light food and water before exams?

All about Payback Period

All about Payback Period

Payback period (in capital budgeting) is the number of years necessary to recover the original investment.

In other words, as its name suggests, the payback period represents the time it takes the investment to be paid back. The payback period method is commonly used by companies to evaluate investments: the goal is to choose a project that will recover the investment in the shortest time (i.e., with the shortest payback period). Investments taking less time to be recovered are considered as less risky. As the result, sometimes companies might establish a limit on the payback period beyond which no investment is done (i.e., cutoff period).

Cutoff period is the pre-determined (desired) length of time for an investment to be recovered.

When the payback period is shorter than the cutoff period, the investment can be accepted. When the payback period is longer than the cutoff period, the investment cannot be accepted in accordance with the payback period method.

Though the payback period method is quite useful in assessing a project’s risk and liquidity, other financial capital budgeting methods — such as present value and rate of return – should be also used to evaluate investment alternatives. An investment should not be based solely on the payback period acceptance.

Advantages and disadvantages of the payback period method

Advantages of the payback period method:

  • Easy to use
  • Can be used with other capital budgeting techniques
  • Considers the risk of investment

Disadvantages of the payback period method:

  • Does not consider the time value of money concept: does not discount cash inflows
  • Does not consider cash inflows after the original investment is recovered
  • Does not measure the profitability of a project
  • Does not effectively evaluate projects with small cash inflows in the beginning and large cash inflows later on

To address some of the above-listed disadvantages, a company should determine an appropriate cutoff period and discount cash flows before calculating the payback period.

All about Payback Period

CAKARt

At  CAKART www.cakart.in you will get everything that you  need  to be successful in your CA CS CMA exam – India’s best faculty  video  classes (online or in pen drive) most popular books of best  authors  (ebooks hard copies) best scanners and all exam related  information  and notifications.Visit www.cakart.in and chat with our  counsellors  any time. We are happy to help you make successful in your  exams.

www.cakart.in

www.cakart.in

Click here to download FREE CA CS CMA books.

 

Leave a comment

Your email address will not be published. Required fields are marked *