Discounted payback


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Discounted payback

The length of time needed to recoup the present value of an investment.
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The perceived weaknesses of some of these models have resulted in the development of 'modified' models, such as the modified internal rate of return (MIRR), the profitability index (PI), and the discounted payback period (DPB).
Discounted payback period [theta] (where [theta] [less than or equal to] N) is calculated with the consideration of time value of money using equation (2).
The ASHRAE simple payback period (SPP) is compared to a discounted payback limit or scalar of 13.077 years.
Furthermore, the project pays back within two years following the Discounted payback approach.
The PFS estimates that, based on the key parameters described below, the Net Present Value (NPV8) of the FerrAus Pilbara Project, using an 8 per cent discount rate (real, after tax), ranges from A$1,120 million to A$1,340 million, with an after tax Internal Rate of Return (IRR) return of between 24 and 26 per cent and a discounted payback of 4 years.
Discounted payback calculation for A Project A Year Discounted cash flow (DCF) Cumulative DCF 0 -[pounds sterling]25.00m -[pounds sterling]25.00m 1 [pounds sterling]14.54m -[pounds sterling]10.46m 2 [pounds sterling]9.91m -[pounds sterling]0.55m 3 [pounds sterling]7.51m [pounds sterling]6.96m 4 [pounds sterling]5.46m [pounds sterling]12.42m 5 [pounds sterling]3.73m [pounds sterling]16.15m Payback: 2.07 years This article has focused on investment appraisal techniques, but this is not the full story when it comes to evaluating projects, of course.
Table 3 reports the results of the economic analysis for the "base case" described above, in terms of annual savings, net present worth (NPW), and discounted payback period (DPP).
The seminars will also examine allocating company resources according to a prioritised list of projects as well as identifying project evaluation and analysis techniques including the discounted payback method, internal rate of return, net present value and profitability index.
Assuming it requires a capital investment of $15 million to build the facility, a simple discounted payback calculation will approximate the financial breakeven point and net present value of the alternative.
The capital budgeting techniques known as (1) payback, (2) discounted payback, (3) net present value, (4) internal rate of return, (5) modified internal rate of return, and (6) the profitability index, may be used to examine the expected cash flows of each potential project.
As do Graham and Harvey (2001) we use a variety of capital budgeting techniques: discounted cash flow techniques like the IRR, NPV, adjusted present value (APV) (see Brealey and Myers, 2003), discounted payback period, profitability index, and hurdle rates; next to price earnings multiples, book rates of return; and then more advanced methods like sensitivity analysis, real options, and value at risk.
(8.) An improved approach to payback, discounted payback, has been developed.