Communiquez avec les autres et partagez vos connaissances professionnelles

Inscrivez-vous ou connectez-vous pour rejoindre votre communauté professionnelle.

Suivre

Pay-Back Period .( True or False )?

Pay-Back Period is the best method to evaluate projects, as it gives accurate information about the expected cash flows for the next coming years.( True or False )

user-image
Question ajoutée par Tamer Elbeshbishy , Financial and Administration Manager , Muscat Towers Holding Group
Date de publication: 2016/08/11
MUHAMMED SHAMEEM CPP CIPS
par MUHAMMED SHAMEEM CPP CIPS , Senior Procurement Officer , Power International Holding

Dear , 

 

if you mean Payback Period , it is absolutely true . we can forecast the cash flow by estimating the time required to recoup the funds expended in our projects, or to reach the break-even point. 

 

If helpful ! , vote up .

 

Best Regards .

SHAMEEM 

 

Wendy DSouza
par Wendy DSouza , Finance Assistant , Mindshare Advertising

False, pay-back period method fails to take into account the time value of money and does not take into consideration additional cash flow beyond the payback period. Applying single cut off date to every project may result in accepting many marginal project and rejecting good ones.

Abduboriy Karimov
par Abduboriy Karimov , Intern, Assistant Manager , Grand Art Ceramics

False, it ignores time value of future cash flows. 

MOHAMED ELREWINY
par MOHAMED ELREWINY , Financial Accounting Manager , SAUDI MADAD GROUP

Payback period in capital budgeting refers to the period of time required to recoup the funds expended in an investment, or to reach the break-even point. [1] For example, a $1000 investment made at the start of year 1 which returned $500 at the end of year 1 and year 2 respectively would have a two-year payback period. Payback period is usually expressed in years. Starting from investment year by calculating Net Cash Flow for each year: Net Cash Flow Year 1 = Cash Inflow Year 1 - Cash Outflow Year 1. Then Cumulative Cash Flow = (Net Cash Flow Year 1 + Net Cash Flow Year 2 + Net Cash Flow Year 3, etc.) Accumulate by year until Cumulative Cash Flow is a positive number: that year is the payback year.

The time value of money is not taken into account. Payback period intuitively measures how long something takes to "pay for itself." All else being equal, shorter payback periods are preferable to longer payback periods. Payback period is popular due to its ease of use despite the recognized limitations

mohamed Hakim CMA CPA Candidate
par mohamed Hakim CMA CPA Candidate , Accounting Manager , Andersen saudi arabia

thanks for invitation 

i think answer is : false 

we can not say that there is best way to evaluate Projects 

there are alot you can work on to expect projects income ,  cashflow etc 

 

 

Zaheer uddin Raja
par Zaheer uddin Raja , Accounts Supervisor , Pakistan International Airlines

False. The method does not consider a) expected outflows during pay-back period and b) expected inflows / outflows after pay-back period.

Utilisateur supprimé
par Utilisateur supprimé

Agreed to Muhammad Shameem.

Michael Rolan Sta Ines, CPA
par Michael Rolan Sta Ines, CPA , SENIOR ACCOUNTANT , Oskar Phone LLC

False. It is the simpliest method but not the accurate because it is not taking into account the time value of money.

prashant gairola
par prashant gairola , Senior Executives/Planning/ Brand Management/Inventory Control/Pricing , LifeStyle Pvt. Ltd. (LANDMARK GROUP)

False. this method provides the time period in which a venture will achieve break even 

Ayman Said
par Ayman Said , Senior accountant , Borg Pharmaceutical industries

False .. payback period only consider the cash flows until the point of break even (until future cash flows equal the initial investment) and doesn't consider any cash flows after that point.

ie: the project may incur a losses after that point so the project should be rejected

Muhammad Waleed
par Muhammad Waleed , Assistant Manager Finance , Turnotech (Private) Limited

Payback period is the oldest method of investment /project appraisal. Now modern techniques are there to evaluate the investment/projects and rates of return. Payback ignores the rate of return and it also does not take into account the cash flows once payback is achieved.

More Questions Like This