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imported>Doug Williamson |
imported>Doug Williamson |
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| Payback analysis is a method of investment appraisal in which the cumulative net total of investment (one or more outflows - negative amounts) and return (inflows - positive amounts) is projected in order to determine when that net total is zero.
| | Price makers in an asset quote two way prices to the market. |
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| This is the time when the initial investment has been fully recovered.
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| For example a proposal requires an initial investment of $100m at Time 0 years, and will then pay out annual amounts of $10m, $20m, $30m, $40m, $50m and $60m at future Times 1 to 6 years respectively.
| | Also known as 'market makers'. |
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| The cumulative net cash flow and payback period are calculated as follows:
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| Time 0: $(100)m.
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| Time 1: $(100)m + $10m = $(90)m.
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| Time 2: $(90)m + $20m = $(70)m.
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| Time 3: $(70)m + $30m = $(40)m.
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| Time 4: $(40)m + $40m = $0.
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| The initial investment has paid back after 4 years, so the payback period is 4 years.
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| Normally there is no attempt to adjust for money received in different time periods.
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| The underlying assumption is that the sooner you can 'get your money back' the better the project.
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| This is, of course, very simplistic, and it may lead to suboptimal decisions.
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| A slightly more sophisticated version of payback analysis is Discounted payback.
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| == See also == | | == See also == |
| * [[Discounted payback]] | | * [[Market maker]] |
| * [[Investment appraisal]] | | * [[Price taker]] |
Revision as of 19:11, 10 August 2016
Price makers in an asset quote two way prices to the market.
Also known as 'market makers'.
See also
