What is Post discounting period?

The period of time that a project or investment takes for the present value of future cash flows to equal the initial cost provides an indication of when the project or investment will break even. The point after that is when cash flows will be above the initial cost.

How do you calculate discount period?

The discount period is the period between the last day on which the discount terms are still valid and the date when the invoice is normally due. For example, if the discount must be taken within 10 days, with normal payment due in 30 days, then the discount period is 20 days.

What is post pay back period?

Post Pay-back Period method takes into account the period beyond the pay-back method. This method is also known as Surplus Life over Pay- back method. According to this method, the project which gives the greatest post pay-back period may be accepted.

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What is meant by the term discounting?

Discounting is the process of converting a value received in a future time period (e.g., 1, 10, or even 100 years from now) to an equivalent value received immediately. For example, a dollar received 50 years from now may be valued less than a dollar received today—discounting measures this relative value.

What is the difference between payback period and discounted payback period?

The payback period is the number of years necessary to recover funds invested in a project. … The discounted payback period is the number of years after which the cumulative discounted cash inflows cover the initial investment.

What is discount period in DCF?

You use it to represent the fact that a company’s cash flow does not come 100% at the end of each year – instead, it comes in evenly throughout each year. In a DCF without mid-year convention, we would use discount period numbers of 1 for the first year, 2 for the second year, 3 for the third year, and so on.

How do you find the discount price?

How to calculate discount and sale price?

  1. Find the original price (for example $90 )
  2. Get the the discount percentage (for example 20% )
  3. Calculate the savings: 20% of $90 = $18.
  4. Subtract the savings from the original price to get the sale price: $90 – $18 = $72.
  5. You’re all set!

How do you calculate post payback period?

To calculate the payback period you can use the mathematical formula: Payback Period = Initial investment / Cash flow per year For example, you have invested Rs 1,00,000 with an annual payback of Rs 20,000. Payback Period = 1,00,000/20,000 = 5 years. You may calculate the payback period for uneven cash flows.

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How do I calculate payback period?

To determine how to calculate payback period in practice, you simply divide the initial cash outlay of a project by the amount of net cash inflow that the project generates each year. For the purposes of calculating the payback period formula, you can assume that the net cash inflow is the same each year.

What is average rate of return?

The average rate of return is a way of comparing the profitability of different choices over the expected life of an investment. To do this, it compares the average annual profit of an investment with the initial cost of the investment.

What is discounting and compounding?

Compounding method is used to know the future value of present money. Conversely, discounting is a way to compute the present value of future money. … Contrary to this, Discounting is used to determine the present value of the future cash flow, at a certain interest rate.

What is the principle of discounting?

According to the discounting principle, the perceived role of a given cause in leading to a given effect is diminished when other possible causes for that event are also detected.

What is discounting and discount rate?

Discounting can refers to the act of estimating the present value of a future payment or a series of cash flows that are to be received in the future. A discount rate (also referred to as the discount yield) is the rate used to discount future cash flows back to their present value.

Which is more reliable payback or discounted payback?

Simple payback method is a less accurate representation of the break-even point of a project as it disregards the time value of money. Discounted payback method is more accurate as by applying the cost of capital, it considers the time value of money.

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What is the main disadvantage of discounted payback?

One of the disadvantages of discounted payback period analysis is that it ignores the cash flows after the payback period. Thus, it cannot tell a corporate manager or investor how the investment will perform afterward and how much value it will add in total. It may lead to decisions that contradict the NPV analysis.

Is discounted payback period shorter than payback period?

Because no discounting is applied to the basic payback calculation, it always returns a payback period that is shorter than what would be obtained with the discounted payback period calculation.