Define incremental cash flows received after the payback period are ignored?
Submitted by: AdministratorLet's illustrate what this means by using two hypothetical projects which are being considered as an investment:
Project #187 has a payback period of 4 years. However, the amounts of the net incremental cash inflows are expected to decline beginning in Year 4 and are expected to end in Year 7.
Project #188 has a payback period of 6 years. However, the amounts of its net incremental cash inflows are positive and are expected to grow exponentially from Year 4 through Year 15.
While Project #187's payback period is faster, Project #188 is a significantly better investment. Hence, the limitation of using the payback period for ranking potential investments.
Submitted by:
Project #187 has a payback period of 4 years. However, the amounts of the net incremental cash inflows are expected to decline beginning in Year 4 and are expected to end in Year 7.
Project #188 has a payback period of 6 years. However, the amounts of its net incremental cash inflows are positive and are expected to grow exponentially from Year 4 through Year 15.
While Project #187's payback period is faster, Project #188 is a significantly better investment. Hence, the limitation of using the payback period for ranking potential investments.
Submitted by:
Read Online Business Ratios Job Interview Questions And Answers
Top Business Ratios Questions
☺ | What is Accrued compensation? |
☺ | What is NOI? |
☺ | Described turnover? |
☺ | Define leverage? |
☺ | Described financial leverage? |
Top Business and Economics Categories
☺ | Taxation Interview Questions. |
☺ | Economics Interview Questions. |
☺ | Accounts Receivable (AR) Interview Questions. |
☺ | General Ledger Interview Questions. |
☺ | Fixed Assets Interview Questions. |