I feel like the CFA curc. isn’t helping me here…seems like such an easy thing to do…If someone can give me a sentence exp., that would be great.
me = burned out?
Thanks!
The discounted payback method is simply discounting each year’s cash flow at the discount rate until those discounted cash flows sum up to the initial cash outflow.
The brief description courtesy of my notes, I’m not sure how much it will help though.
The payback period is the number of years it will take to recover the original investment. The disadvantage is that it ignores the time value of money and the cash flows received after the payback period.
The discounted payback period is similar to the payback period except that the cash flows are discounted by the project’s cost of capital. It still ignores cash flows received after payback.
Conquistador07 Wrote:
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> If it’s discounting at cost of capital how can it
> avoid TVM?
Payback period avoids the TVM, but discounted payback solves the problem and does take into consideration the TVM, which for all intensive purposes is the difference between the two.
bpdulog Wrote:
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> If you have a BA II Plus Pro you can just enter in
> the cash flows and it’ll calculate it for you.
that’s cheating…haha jk
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