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Payback Period Methid and Discounted Payback Method

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What are the differences between the payback period method and the discounted payback method? Which method is better in valuating investments?

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This solution discusses the differences between the payback period method and the discounted payback method.

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The Payback Period:

The payback period method is an investment valuation model that is based on a management or shareholders' decision that sets the required cut-off period for a project to be considered acceptable. For example, a company that invests $5 million in a project may set a cut-off period of 3 years, which means that the initial investment of $5 million must be paid back by the project's cash flows within 3 years. If the amount is not paid back before this cut-off period, the project is considered ...

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