ECONOMICS

Detailed explanation-1: -The payback period disregards the time value of money and is determined by counting the number of years it takes to recover the funds invested. For example, if it takes five years to recover the cost of an investment, the payback period is five years. This period does not account for what happens after payback occurs.

Detailed explanation-2: -Payback Period for Capital Budgeting The payback period represents the number of years it takes to pay back the initial investment of a capital project from the cash flows that the project produces. The capital project could involve buying a new plant or building or buying a new or replacement piece of equipment.

Detailed explanation-3: -The specific time value of money calculation used in Capital Budgeting is called net present value (NPV). NPV is the sum of the present value (PV) of each projected cash flow, including the investment, discounted at the weighted average cost of the capital being invested (WACC).

Detailed explanation-4: -The payback period method gives an estimate of the time period in which the entire investment in a project gets recovered without giving consideration to the time value of money.

Detailed explanation-5: -ARR is a percentage return and does not take into account the time value of the money. It calculates the return generated from the net income of proposed capital investment.