Capital Budgeting Decisions By Heena Malhotra

Payback Period Traditional or Non Discounting ccounting Rat of Return (ARR) Capital Budgeting Techniques Net Present Value (NPV) Profitability Index (PI) Time adjusted or Discounted Cash Flows Internal Rate of Return (IRR) Modified Internal Rate of Return (MIRR) Discounted Payback By Heena Malhotra

For example, a 30,000 cash outlay for a project with annual cash inflows of 6,000 would have a payback of 5 years 30,000/6,000. Year | Cash Flow | PVF@15% | PV Cumulative PV 5,220 9,756 13,704 17,136 20,118 22,710 24,966 26,928 28,632 30,114 0.870 5,220 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 1 0.756 4,536 3,948 3,432 2,982 2,592 0.376 2.256 1,962 0.284 1,704 1,482 2 0.658 0.572 0.497 0.432 4 6 8 0.327 10 0.247

The cumulative total of discounted cash flows after ten years is 730,114. Therefore, our discounted payback is approximately 10 years as opposed to 5 years under simple payback.It should be noted that as the required rate of returm increases, the distortion between simple payback and discounted payback grows. Discounted Payback is more appropriate way of measuring the payback period since it considers the time value of money By Heena Malhotra

Discounted Payback Period Some accountants prefer to calculate payback period after discounting the cash flow by a predetermined rate and the payback period so calculated is called, Discounted payback period. One of the most popular economic cnteria for evaluating capita projects also is the payback period. Payback period is the time required for cumulative cash inflows to recover the cash outflows of the project. This is considered to be superior than simple payback period method because it takes into account time value of money. By Heena Malhotra

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Heena Malhotra

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Reena Agnihotri

3 months ago

Nice

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Parul Jain

3 months ago

Thank you

Abhay varshney

5 months ago

mam discounted cash flow me 15% PVF kese liya

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Abhay varshney

5 months ago

hum koi bhi PVF value le sakte h kya

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