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
how i can get enough money with out doing any works ????????????

Stardusts has 1 debt issue outstanding.  The debt matures on August 15, 2017, and has a 6.25% coupon.  Coupons are paid semiannually.  The bond is priced to yield 1.61% compound se

BAC is considering an issue of preferred stock.  The dividends are 8.12% of the $25 par value. a.    If the present price is $26.25 per share, what is the return on the preferre

What are the tasks of a financial system? Three Tasks of a Financial System are as follows: 1. Decreasing transaction costs 2. Decreasing financial risk 3. Giving liqu

ROS - Return on Sales (Profit Margin) The Average of the industry ROS was 5.18% for 2004, 4.41% for 2005, and 7.20% for 2006. The chart showed that ROS has been declined f

State about the Odd-lot Dealer He/she specializes in buying and selling in amounts which are less than present trading units. They buy and sell odd lots, make them up into ma

Please list five common mistakes in capital budgeting that could either overstate or understate the value of a project.Bonus: explain the relationship between the errors above and

Example of Dividend Basis Valuation Company Laxmi Synthetics pays a dividend of 10% on its Sh.60 par value ordinary shares.  This company uses a discount rate of 15%.  A

Suppose an entrepreneur owns a firm which has two production opportunities. Technology A generates an output (net profit) of 10 in state 1, an output of 20 in state 2, and an outpu

A+/A1 It is one of the top ratings that a ratings agency allots to an issuer or insurer. This rating indicates that the security or carrier has steady financial backing and ple