
Concept explainers
Concept Introduction:
Payback period:
Capital budgeting is a planning process used to know whether a long term investment or options like to keep the old machine will be profitable or not involving factors like present value factors.
There are many capital budgeting techniques. The technique that will be discussed here is –
Payback period of the investment
Payback period –
Payback period of the investment is calculated as under –
Break-even time or discounted payback period:
The break-even time is discounted payback period. When payback period concept includes the concept of present value, it is termed as break-even time.
Requirement 1
To compute:
• Payback period
• Break-even time
Requirement 2
To discuss:
Advantage of Break-even time over the payback period
Requirement 3
To list:
Two conditions under which payback period and break-even time are similar

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Chapter 25 Solutions
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