COMM 203 Lecture Notes - Lecture 3: Capital Budgeting, Cash Flow, Net Present Value
Document Summary
The capital budgeting process involves: generating investment possibilities; and, analyzing and making a selection; and. There are several mathematical methods that can be used in our analysis. In chapter 9, we consider popular methods, and determine which is most reliable. The payback period is the length of time it takes to recover the cost of the initial investment. Based on the payback rule, an investment is acceptable if its calculated payback is less than some pre-specified number of years. Abc corporation requires a payback period of 3 years or less for all projects. Given the following cash flow projections, determine the payback time. The payback time for this project is 2. 8 years. Abc would accept the project given their criteria. Adjusts for uncertainty of future cash flows by completely ignoring them! Ignores cash flows beyond the payback period. The discounted payback period is the length of time until the sum of the discounted cash flows equals the initial investment.
