New! BPP Books for ACCA September 2022 Exams are now available, get your discount code >>

Capital budgeting

This topic has 3 replies, 2 voices, and was last updated 9 months ago by John Moffat.

Viewing 4 posts - 1 through 4 (of 4 total)

Author

Posts
September 11, 2021 at 8:29 am #635490
maximus07
- Topics: 374
- Replies: 379
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: 57
- Replies: 49598
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
- Topics: 374
- Replies: 379
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: 57
- Replies: 49598
If you have a tutor then why do you not ask him/her? 🙂 🙂
Author

Posts

Viewing 4 posts - 1 through 4 (of 4 total)

You must be logged in to reply to this topic.