Disadvantages of payback period, Finance Basics

Disadvantages of Payback Period

1. Does not receive into account time value of money and supposes that a shilling obtained in the 1st year and in the Nth year have the similar value so like to rank them simultaneously to ascertain the PBP that is unrealistic given such a shilling now is valuable rather than a shilling N years from currently.

2. PBP procedure does not measure the profitability of a venture however quite measures the period of time a venture obtains to pay back the cost.  The procedure is outside looking or lender oriented quite than owner oriented.

3. PBP procedure ignores inflows after PBP and like, it does not accommodate the factor of return to an investment.

4. This procedure will not have any type of impact on the company's share prices as profitability that is one of the most significant factors in gauging the company's value of shares is not a function of PBP and like the procedure fall short of meeting the criteria of investment appraisal.

Posted Date: 1/31/2013 12:25:53 AM | Location : United States







Related Discussions:- Disadvantages of payback period, Assignment Help, Ask Question on Disadvantages of payback period, Get Answer, Expert's Help, Disadvantages of payback period Discussions

Write discussion on Disadvantages of payback period
Your posts are moderated
Related Questions
Review the budget below and answer the questions following the budget. FINANCIAL ACCOUNTING—STATEMENT OF REVENUE AND EXPENSES Statement of Revenue and Expenses for Group Practice f

Solution to the Agency Conflict The government can acquire the following actions to protect itself and its interests. 1. Acquire monitoring costs E.g. the gover

Mortgages - Financial Institutions An arrangement of the property being purchased provides the security for funding. Other assets may be employed like security for funding o

1.  A company is trying to decide which one of two projects it should accept. Both projects have similar start-up costs. Project 1 will generate annual cash flows of $52,000 a year

Dividend Ratios 1. Dividend per shares (DPS) = Earnings to ordinary shareholders/ Number of ordinary shares Specify cash returns received for all share holders. 2. Di

Question: a) A bank lends you $1750 at an initial nominal yearly interest rate of 7.5% compounded semi-annually. However, the interest rate will rise to 9.2% after the first

Assignment Gary and Beth have accepted the asset allocation that you have given them, but are now looking to you to give them some advice on what stocks they should purchase. R

I need to understand a practice question for exam, but I only have a partial solution. I need a more detailed solution, so can understand how to arrive at the answer. The problem

The table below gives data on the average number of football games attended per year among a population of students at a small college, separately by major. All students are in one

hello