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Please with respect to the above named question, how was the project liquidity/recovery period calculated? Is there a particular formula to use for this and is there also another name for it because I’ve never read about it in the study text
ThanksThe recovery period is the discounted payback period (which you should have heard of).
So….in discount terms we need to recover the PV of the investment (17.3961).
The first receipts do not occur until after 2 year, so it is obviously going to be more than two years.
The PV of the receipts is 19.6931 and the receipts take in total 8 years to come in.So……a rough approximation to the discounted payback period is to say that it is 2 years + 17.3961/19.6931 x 8 years.
However, do realise that the question did not specifically ask for this. You were expected to come up with suggestions for the report, and this is a quick little approximation that you could have suggested. What you chose to call it is not relevant – it is not really a standard measure.
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