Page 28 - Microsoft Word - 00 ACCA F9 IWB prelims 2017.docx
P. 28

Chapter 2





                           Payback





               3.1 Payback technique

               The payback technique considers the time a project will take to pay back the money
               invested in it. It is based on expected cash flows. To use the payback technique a
               company must set a target payback period.

                             Decision criteria

                                  Compare the payback period to the company's target return time
                                   and if the payback for the project is quicker the project should be
                                   accepted.

                                  Faced with mutually exclusive projects choose the project with
                                   the quickest payback.






                  Question 4



                  Payback

                  A project requires an initial investment of $1,000,000 and then earns net cash
                  inflows of $150,000 per year for 7 years.































               20
   23   24   25   26   27   28   29   30   31   32   33