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Target pay back period and cut off period is same? Next doubt If pay back period = target pay back period then accept ?


Nivetharaman Raman

Nivetharaman Raman

CA Inter

10K+

19-Apr-20 09:13

69

Answers (3)

Q1: Yes Target period and cut off period are same. Q2: No. If pay back period = target pay back we do not accept a project. The issue with payback period is it ignore Time value of money. Say you invest 1 lac today and i give you back 50K each year for next two years, you have got your money back but have you made any return -Answer is no. Discounted pay back period is a much metric although it has its own limitations


Sriram Somayajula

Sriram Somayajula

Admin

19-Apr-20 13:00

If pay back = target, an organisation may still accept a project because some organisations may use it as a benchmark for projects even though it is an incorrect measure. In real life it is not a great measure because it ignores time value but in our study material some questions do use it as a measure for project acceptance


Sriram Somayajula

Sriram Somayajula

Admin

19-Apr-20 18:30

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