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analize advantage and disadvantage of discounted - payback period of capital budgeting!

analize advantage and disadvantage of discounted - payback period of capital budgeting!

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Some of the advantage of discounted - payback period of capital budgeting are :

  1. It consider the time value of money consider the riskiness of the project.while calculating the PBP.
  2. It determines the actual risk involved in the project.whether the investments made are recoverable or not.
  3. payback period of capital budgeting is an easy way to compare several projects and then to take the project that has the shortest payback time by comparing different result.
  4. It is simple to use and easy to understand.
  5. payback period of capital budgeting help the organization to reduce the risk of loss

Some of the disadvantage of discounted - payback period of capital budgeting are :

  1. The main disadvantage of the discounted - payback period of capital budgeting are it fail to determine weather the investment will increase the firms value or not.
  2. Calculation of PBP can get complex if there are multiple native cash flows.
  3. In the organizations, it doesn't give the exact information to the managers required to take the decision for the investment in the project.
  4. if there are multiple negative cash flows are present.The calculation of discounted - payback period will get complex during the investment time.

So,these are the some advantage and disadvantage of the discounted - payback period of capital budgeting

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