Concept explainers
Payback period:
Number of periods required for collecting initial investment is called payback period. It is traditional technique. Payback period uses normal cash flows. Therefore, the
Calculate the payback period by using the following formula:
Decision for payback period:
Discounted payback period:
Number of periods required for collecting initial investment is called discounted payback period. It is a modern technique. Discounted Payback period uses discounted cash flows. Therefore, the time value of money concept is considered.
Calculate the discounted payback period by using the following formula:
Decision for payback period:
Cost of the project is $270,000 and
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