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
what is the importance of public expenditure

1.  Suppose you would like to buy a house and you decided you can pay 3500 per month for 30 years.  Your bank has approved you for a 30-year fixed rate mortgage loan at a quoted AP

Actions of Shareholders in Agency Conflict a) Disposal of assets required like collateral for the debt in this. In this case the bondholder is exposed to more risk becaus

Comparison to a Competing Firm In Mergent Horizon, return to the competitor page, but now enter the list of competitors "As Defined by the Company."  From this list select a f

A firm just announced that it will cut its dividend from 4.9 dollars per share to 2.1 dollars per share at the end of this year. The dividend was expected to grow 2.7% every year b

Example of Capital Structure of a Company Example Company XYZ restricted has the given capital structure as:   10,000 Sh.10 ordinary shares 10,000

Management of Sole Proprietorship  In sole proprietorship the owner is usually in charge of day to day running of the business. If the business is large he may give some duties

Disadvantages of Overdraft Finance A. It is expensive as the interest rates of overdrafts are much higher than bank rates. B. The employ of this finance is an indication of

Lock-Box System In a lock-box system, the customer sent the payments to a post office box. The post office box is emptied with the firm's bank at minimum once or twice all bus

risk structure of interest rates 1. Default risk 2. Liquidity 3. Income tax consideration 4. Expectations theory