One of the major disadvantages of simple payback period is that it ignores the time value of money. To counter this limitation, an alternative procedure called discounted payback period may be followed, which accounts for time value of money by discounting the cash inflows of the project. In discounted payback period we have to calculate the present value of each cash inflow taking the start of the first period as zero point. For this purpose the management has to set a suitable discount rate. The discounted cash inflow for each period is to be calculated using the formula: 

 

Discounted Cash Inflow = Actual Cash Inflow    (1 + i)n 

 

Where;-  i ­ is the discount rate;  n ­ is the period to which the cash inflow relates. The above formula is split into two components which are actual cash inflow and present value factor (i.e. ( ) ). Thus discounted cash flow is the product of actual cash flow and present value factor.

 

 

The rest of the procedure is similar to the calculation of simple payback period except that we have to use the discounted cash flows as calculated above instead of actual cash flows. The cumulative cash flow will be replaced by cumulative discounted cash flow. 

 

Discounted Payback Period = A + B C 

 

Where;  A = Last period with a negative discounted cumulative cash flow;  B = Absolute value of discounted cumulative cash flow at the end of the period A;  C = Discounted cash flow during the period after A. 

 

 QUESTIONS

1.conceptualize on public income revenue in the context of resource allocation for a state and the operating activities

2.when is the right time to rise concern for the criterion of Public expenditure concerning finances for a country?

3.explain on the chipping of the scenario of public debt when financing is the talk of the day

4.show the connection of the financial administration and financing roles

5.provide a distinction which separates the private and public finance?

6.what is the synonymy ha brings together the private and public finance regarding principles

7.what are the objectives of the public and private fiancés that bring them together?

8.relate Income expenditure and borrowing to the utilization of both public and private incomes?

9.prepare n adjustment statement between income and expenditure when referring to public and private finances?

10.what is the implication of the Present-vs-future when referring to the two types of finances?