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diamong [38]
1 year ago
6

What is the major limitation of using the payback period as a tool in capital budgeting?

Business
2 answers:
Airida [17]1 year ago
7 0

The major limitation of using the payback period as a tool in capital budgeting is <u>it ignores the time value of money</u>.

Capital budgeting is a technique of estimating the financial viability of capital investment over the existence of the funding. unlike some different forms of investment evaluation, capital budgeting makes a specialty of coins flows rather than seasonedfits.

Capital budgeting is vital as it creates accountability and measurability. Any enterprise that seeks to make investments in its assets in a challenge without expertise in the dangers and returns worried would be held irresponsible by way of its owners or shareholders.

Capital Budgeting more often than not refers to the choice-making technique related to investment in long-time period tasks, an instance of which incorporates the capital budgeting system performed by way of an agency to determine whether or not to keep with the prevailing machinery or buy a brand new one in the vicinity of the vintage machinery.

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hoa [83]1 year ago
4 0

The major limitation of using the payback period as a tool in capital budgeting is that it ignores the time value of money.

The payback period technique does not account for the time fee of money idea and it's far directly thinking about the fee of cash inflows so it'll now not be presenting with the accurate estimation of while the capital is lower back to the shareholders and it's far the least correct approach due to the fact the opposite method like discounted payback period or internal rate of going back are imparting with a higher estimation due to the fact they cut price for the time value of money.

As payback does now not remember the time cost of money, it considers all cash inflows to be equal in fee irrespective of the time when it occurs. It could offer erroneous results, as the cash obtained a yr later than the given one (present) is much less in price, if we practice the idea of time cost of money.

The term payback period refers to the amount of time it takes to get better the cost of funding. In reality put, it's miles the duration of time and funding reaches a breakeven point. Human beings and businesses mainly make investments in their cash to get paid lower back, that's why the payback duration is so critical.

Learn more about payback here brainly.com/question/14316388

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You have been investing $165 a month for the last 12 years. today, your investment account is worth $60,508.29. what is your ave
Tanzania [10]
Given:
Future value, F=60508.29
Monthly payment, A = 165
Compounding period = month
Number of periods, n = 12*12=144
interest per period = i   [ to be found ]

We have the relationship
F=A((1+i)^n-1)/i
but there is no explicit formula for i for given F, A and n.
We need to solve a non-linear equation for the value of i, the monthly interest rate.
One of the ways is to solve it by fixed iteration, i.e. 
1. using the given relation, express i in terms of other parameters.
2. select an initial value of i
3. evaluate i according the equation in step 1 until the value is stable.

Here we will use the relationship to express
i=((60508.29*i)/165+1)^(1/144)-1  [ notice that i is on both sides of = sign ]
using an initial value of i=0.01 (about 1% per month).
Successively, we get
i=((60508.29*0.01)/165+1)^(1/144)-1=0.01075571
i=((60508.29*0.01075571)/165+1)^(1/144)-1=0.011160681, similarly
i=0.0113685
i=0.0114728
i=0.0115246
i=0.0115502
i=0.0115628
i=0.0115690
i=0.0115720
Assuming the above has stablilized, and the APR is 12 time the above value, namely
Annual percentage rate = 0.01157205998210142*12=0.13886=13.89%



6 0
3 years ago
When you should send an email
Greeley [361]

B. When the subject matter is objective and informative

8 0
2 years ago
Read 2 more answers
________ company emphasizes its home country culture throughout its operations, and it tends to staff key positions abroad with
photoshop1234 [79]

Answer:

The correct answer is letter "C": An ethnocentric.

Explanation:

An ethnocentric company is the type of organization that promotes the culture of its own culture among employees and focuses on providing local workers with the best opportunities possible so they can be competitive. These firms have a nationalistic approach and have the main goal of contributing to their country's development.

7 0
3 years ago
The loan amount (principal) is $50,000 and the annual interest paid is $5,500. What is the annual interest rate
Mumz [18]

Answer:

The interest rate is 11%

Explanation:

The loan amount = $50000

Interest amount = $5500

Since the annual interest amount and the principal amount is given so we have to find the interest rate by using the given information. Below is the formula to find the interest rate.

Let the interest rate = x

Principal × interest rate = Interest amount

$50000 × r = $5500

r  = $5500 / $50000

r = 0.11 or 11%

The interest rate is 11%

5 0
3 years ago
What were two most challenging educational experiences? Explain why they were challenging
Tresset [83]

to me it would actually have to be college course math because im not really good at trigonometry

3 0
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