ECONOMICS

Detailed explanation-1: -All cash flows generated by an investment project are immediately reinvested at a rate of return equal to the discount rate. The firm’s cost of capital is usually regarded as the minimum required rate of return.

Detailed explanation-2: -Simply put, the cash payback technique involves dividing the total cost of the upgrade by the amount of money that the upgrade will make every year. This gives us the cash payback period, or the amount of time we have to wait to see the item pay for itself.

Detailed explanation-3: -The payback period only considers cash flow up to the point at which an entity’s initial investment is regained and avoids the time value of money. So, opportunity costs are not considered in the payback period.

Detailed explanation-4: -The payback period is calculated by dividing the amount of the investment by the annual cash flow.