Page 344 - F2 - MA Integrated Workbook STUDENT 2018-19

Chapter 14

3.4 Discounted Payback

One of the major criticisms of using the payback period is that it does not take into
account the time value of money. The discounted payback technique attempts to
overcome this criticism by measuring the time required for the present values of the
net cash flows from a project to equal the present values of the cash outflows.

The technique is identical – but the present value of the cash flow is calculated
before calculating the cumulative cash flow.

Illustrations and further practice

Now review Illustrations 6 and 7 from Chapter 14

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