Chapter 14, Problem 23P

To determine

Concept Introduction:

Concept of payback period:

When the payback period is computed after discounting the cash flows by a pre-determined rate (cut-off rate), it is called as the ‘Discounted Payback Period’.

Concept of Profitability Index : Where different investment proposals each involving different initial investments and cash inflows are to be compared, the Profitability Index (PI) technique is used

Concept of ARR:

Accounting (or) Average Rate of Return (ARR) means the average annual yield on the project. In this method profit after tax (PAT) instead of (FAT) is used for evolution.

The payback period, net present value for each product, internal rate of return for each product, project profitability index, simple rate of return.