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Capital budgeting

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Capital budgeting

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • September 11, 2021 at 8:29 am #635490
    maximus07
    Participant
    • Topics: 407
    • Replies: 398
    • ☆☆☆☆

    There are two formulae in Kaplan and both are kind of similar.

    Payback Period when we have constant annual cashflows. To find Payback period:
    Payback period = Initial Investment/Annual Cash inflows

    Cumulative discount factor or Annuity factor can be found
    Cumulative Discount factor = Initial Investment/Annual Inflow.

    These both are same so it means that Payback Period (Non-discounted) = Cumulative Discount Factor?
    Please help Professor.

    September 11, 2021 at 8:47 am #635499
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51585
    • ☆☆☆☆☆

    They are the same, but have two different purposes.

    The payback period is the number of years it take to get back the original investment, and if there are constant annual flows then it will be the initial investment / annual cash flows.

    The annuity discount factor is the factor giving the PV of equal annual cash flows.

    Have you watched all of my free lectures?

    September 11, 2021 at 8:58 am #635503
    maximus07
    Participant
    • Topics: 407
    • Replies: 398
    • ☆☆☆☆

    No sir. I watch them month before exam because it revises all the concepts. Till then I read notes, have a tutor and If I have any query so I ask here.

    September 12, 2021 at 8:26 am #635553
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51585
    • ☆☆☆☆☆

    If you have a tutor then why do you not ask him/her? 🙂 🙂

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