finance lec 3 - payback

Question 1

what is payback

Answer 1

number of year it takes to recover intiial investment

Question 2

how do we do ti

Answer 2

calcaulte cumulatie cf and takeaway

Question 3

why is payabck weak

Answer 3

ignores tmie value as adds PV of many diff cf

Question 4

descision rule of payback

Answer 4

choose any project if dont got shortage of funds

must be w in company payback period target

choose projectw shortest payback period

Question 5

if got shortage of funds which payback do we pick 2 considerations

Answer 5

less than target pyaback period

shortest payback

Question 6

when you get stuck in between years what is the claculation you do

Answer 6

previous cumulative cash flow/next cf recieved x 12

cumulative flow/next annual cashflow

Question 7

4 +ve of payback

Answer 7

simple

easy to understand

cashflow based unlike accounting so not subject manipulation – its robust

focus on imminent cf

Question 8

3 -ve of cashflow

Answer 8

ignores time alue of money

ignores cashflow size and timing - i.emight get 100 millly with othere cf

ignores cashflow outside the payback period