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NumberofPayback=yearspriortofullrecovery+CashflowduringfullrecoveryyearUnrecoveredcostatstartofyear a project's payback, the better the project is. However, payback has 3 main disadvantages: (1) All dollars received in different years are given weight.
NumberofPayback=yearspriortofullrecovery+CashflowduringfullrecoveryyearUnrecoveredcostatstartofyear a project's payback, the better the project is. However, payback has 3 main disadvantages: (1) All dollars received in different years are given weight. (2) Cash flows The beyond the payback year are ignored. (3) The payback merely indicates when a project's investment will be recovered. There is no necessary relationship between a given payback and investor wealth maximization. A variant of the regular payback is the discounted payback. Unlike regular payback, the discounted payback considers costs. However, the discounted payback still disregards cas flows the payback year. In addition, there is no specific payback rule to justify project acceptance. Both methods provide information about and risk. Quantitative Problem: Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4-year lives, and
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