1. Boundless Lecture Slides Free to share, print, make copies and changes. Get yours at www.boundless.com Available on the Boundless Teaching Platform

2. Using Boundless Presentations The Appendix The appendix is for you to use to add depth and breadth to your lectures. You can simply drag and drop slides from the appendix into the main presentation to make for a richer lecture experience. Free to edit, share, and copy Feel free to edit, share, and make as many copies of the Boundless presentations as you like. We encourage you to take these presentations and make them your own. Free to share, print, make copies and changes. Get yours at www.boundless.com Boundless Teaching Platform Boundless empowers educators to engage their students with affordable, customizable textbooks and intuitive teaching tools. The free Boundless Teaching Platform gives educators the ability to customize textbooks in more than 20 subjects that align to hundreds of popular titles. Get started by using high quality Boundless books, or make switching to our platform easier by building from Boundless content pre-organized to match the assigned textbook. This platform gives educators the tools they need to assign readings and assessments, monitor student activity, and lead their classes with pre-made teaching resources. Get started now at: If you have any questions or problems please email: educators@boundless.com http://boundless.com/teaching-platform

3. Boundless is an innovative technology company making education more affordable and accessible for students everywhere. The company creates the world’s best open educational content in 20+ subjects that align to more than 1,000 popular college textbooks. Boundless integrates learning technology into all its premium books to help students study more efficiently at a fraction of the cost of traditional textbooks. The company also empowers educators to engage their students more effectively through customizable books and intuitive teaching tools as part of the Boundless Teaching Platform. More than 2 million learners access Boundless free and premium content each month across the company’s wide distribution platforms, including its website, iOS apps, Kindle books, and iBooks. To get started learning or teaching with Boundless, visit boundless.com.boundless.com Free to share, print, make copies and changes. Get yours at www.boundless.com About Boundless

4. Defining the Payback Method Calculating the Payback Period Discounted Payback Advantages of the Payback Method Disadvantages of the Payback Method The Payback Method Capital Budgeting > The Payback Method Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance?campaign_content=book_192_section_92&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=dir ect&utm_source=boundless

5. The payback period is the number of months or years it takes to return the initial investment. To calculate a more exact payback period: payback period = amount to be invested / estimated annual net cash flow. The payback method also ignores the cash flows beyond the payback period; thus, it ignores the long-term profitability of a project. Defining the Payback Method Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/capital-budgeting-11/the-payback-method-92/defining-the-payback-method- 396- 6416?campaign_content=book_192_section_92&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boundl ess Capital Investment in Plant and Property View on Boundless.com Capital Budgeting > The Payback Method

6. Payback period is usually expressed in years. Start by calculating Net Cash Flow for each year, then accumulate by year until Cumulative Cash Flow is a positive number: that year is the payback year. Some businesses modified this method by adding the time value of money to get the discounted payback period. They discount the cash inflows of the project by the cost of capital, and then follow usual steps of calculating the payback period. Additional complexity arises when the cash flow changes sign several times (i.e., it contains outflows in the midst or at the end of the project lifetime). The modified payback period algorithm may be applied. Calculating the Payback Period Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/capital-budgeting-11/the-payback-method-92/calculating-the-payback-period- 397- 4848?campaign_content=book_192_section_92&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boundl ess Discount rate View on Boundless.com Capital Budgeting > The Payback Method

7. The payback period is considered a method of analysis with serious limitations and qualifications for its use, because it does not account for the time value of money. The discounted payback period takes the time value of money into consideration. Whilst the time value of money can be rectified by applying a weighted average cost of capital discount, it is generally agreed that this tool for investment decisions should not be used in isolation. Discounted Payback Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/capital-budgeting-11/the-payback-method-92/discounted-payback-398- 6825?campaign_content=book_192_section_92&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boundl ess Discount rates View on Boundless.com Capital Budgeting > The Payback Method

8. Payback period, as a tool of analysis, is often used because it is easy to apply and easy to understand for most individuals, regardless of academic training or field of endeavor. The payback period is an effective measure of investment risk. It is widely used when liquidity is an important criteria to choose a project. Payback period method is suitable for projects of small investments. It not worth spending much time and effort in sophisticated economic analysis in such projects. Advantages of the Payback Method Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/capital-budgeting-11/the-payback-method-92/advantages-of-the-payback- method-399- 4854?campaign_content=book_192_section_92&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boundl ess Monthly liquidity of an organic vegetable business View on Boundless.com Capital Budgeting > The Payback Method

9. Payback ignores the time value of money. Payback ignores cash flows beyond the payback period, thereby ignoring the "profitability" of a project. To calculate a more exact payback period: Payback Period = Amount to be Invested/Estimated Annual Net Cash Flow. Disadvantages of the Payback Method Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/capital-budgeting-11/the-payback-method-92/disadvantages-of-the-payback- method-400- 4251?campaign_content=book_192_section_92&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boundl ess Zhuhai sea front development View on Boundless.com Capital Budgeting > The Payback Method

10. Free to share, print, make copies and changes. Get yours at www.boundless.com Appendix

11. Key terms cost of capital the rate of return that capital could be expected to earn in an alternative investment of equivalent risk cumulative having priority rights to receive a dividend that accrue until paid discounted payback period The discounted payback period is the amount of time that it takes to cover the cost of a project, by adding positive discounted cash flow coming from the profits of the project. Opportunity cost The cost of an opportunity forgone (and the loss of the benefits that could be received from that opportunity); the most valuable forgone alternative. payback period the amount of time required for the return on an investment to return the sum of the original investment return Gain or loss from an investment. time value of money The value of money, figuring in a given amount of interest, earned over a given amount of time. Free to share, print, make copies and changes. Get yours at www.boundless.com Capital Budgeting

12. Weighted average cost of capital The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. The WACC is the minimum return that a company must earn on an existing asset base to satisfy its creditors, owners, and other providers of capital, or they will invest elsewhere. Free to share, print, make copies and changes. Get yours at www.boundless.com Capital Budgeting

13. Zhuhai sea front development Payback is the amount of time it takes to return an initial investment; however, it does not account for the time value of money, risk, financing, or other important considerations, such as the opportunity cost. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia. "Zhuhai sea front." CC BY-SA http://commons.wikimedia.org/wiki/File%253AZhuhai_sea_front.JPG View on Boundless.comCC BY-SAhttp://commons.wikimedia.org/wiki/File%253AZhuhai_sea_front.JPGView on Boundless.com Capital Budgeting

14. Discount rates Bundesbank discount interest rates from 1948 to 1998. The vertical scale shows the interest rate in percent and the horizontal scale shows years. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia. "Bundesbank discount rate 1948 to 1998 no titles." CC BY-SA http://commons.wikimedia.org/wiki/File:Bundesbank_discount_rate_1948_to_1998_no_titles.svg View on Boundless.comCC BY-SA http://commons.wikimedia.org/wiki/File:Bundesbank_discount_rate_1948_to_1998_no_titles.svgView on Boundless.com Capital Budgeting

15. Capital Investment in Plant and Property The payback method is a simple way to evaluate the number of years or months it takes to return the initial investment. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia. "Bruce A Turbine Hall December 2002." CC BY http://commons.wikimedia.org/wiki/File%253ABruce_A_Turbine_Hall_December_2002.JPG View on Boundless.comCC BYhttp://commons.wikimedia.org/wiki/File%253ABruce_A_Turbine_Hall_December_2002.JPGView on Boundless.com Capital Budgeting

16. Discount rate Discount rate set by Central Bank of Russia in 1992-2009. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia. "CBR Discount Rate 1992-2009." CC BY-SA http://commons.wikimedia.org/wiki/File:CBR_Discount_Rate_1992-2009.png View on Boundless.comCC BY-SAhttp://commons.wikimedia.org/wiki/File:CBR_Discount_Rate_1992-2009.pngView on Boundless.com Capital Budgeting

17. Monthly liquidity of an organic vegetable business Cash demand is high from April to August. The business is more likely to use payback period to choose a project. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia. "Monthly-liquidity." CC BY-SA http://commons.wikimedia.org/wiki/File:Monthly-liquidity.png View on Boundless.comCC BY-SAhttp://commons.wikimedia.org/wiki/File:Monthly-liquidity.pngView on Boundless.com Capital Budgeting

18. Capital Investment in Plant and Property The payback method is a simple way to evaluate the number of years or months it takes to return the initial investment. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia. "Bruce A Turbine Hall December 2002." CC BY http://commons.wikimedia.org/wiki/File%253ABruce_A_Turbine_Hall_December_2002.JPG View on Boundless.comCC BYhttp://commons.wikimedia.org/wiki/File%253ABruce_A_Turbine_Hall_December_2002.JPGView on Boundless.com Capital Budgeting

19. Free to share, print, make copies and changes. Get yours at www.boundless.com Capital Budgeting Which of the following is the best reason to use the payback method to evaluate investments? A) The payback method helps gauge a project's risk. B) If you use the payback method, you do not need to perform additional analyses. C) The payback method is easy to use and understand for most people, regardless of training. D) The payback method covers all cash inflows and outflows for the duration of the investment.

20. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Capital Budgeting Which of the following is the best reason to use the payback method to evaluate investments? A) The payback method helps gauge a project's risk. B) If you use the payback method, you do not need to perform additional analyses. C) The payback method is easy to use and understand for most people, regardless of training. D) The payback method covers all cash inflows and outflows for the duration of the investment.

21. Free to share, print, make copies and changes. Get yours at www.boundless.com Capital Budgeting Calculate the detailed modified payback period for a project with the following cash flows:Year 0: -$2000Year 1: $1000Year 2: - $1000Year 3: $1000Year 4: $3000Year 5: $2000 A) 3 years. B) 4 years. C) 3.33 years. D) 4.33 years.

22. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Capital Budgeting Calculate the detailed modified payback period for a project with the following cash flows:Year 0: -$2000Year 1: $1000Year 2: - $1000Year 3: $1000Year 4: $3000Year 5: $2000 A) 3 years. B) 4 years. C) 3.33 years. D) 4.33 years.

23. Free to share, print, make copies and changes. Get yours at www.boundless.com Capital Budgeting Calculate the detailed modified payback period for a project with a discount rate of 5% the following cash flows:Year 0: -$2000Year 1: $1000Year 2: -$1000Year 3: $1000Year 4: $3000Year 5: $2000 A) 4 years. B) 3.44 years. C) 4.44 years. D) 3.56 years.

24. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Capital Budgeting Calculate the detailed modified payback period for a project with a discount rate of 5% the following cash flows:Year 0: -$2000Year 1: $1000Year 2: -$1000Year 3: $1000Year 4: $3000Year 5: $2000 A) 4 years. B) 3.44 years. C) 4.44 years. D) 3.56 years.

25. Free to share, print, make copies and changes. Get yours at www.boundless.com Capital Budgeting In which of the following situations would using the payback method to evaluate an investment be a good idea? A) To assess projects that require little investment when compared to the size of the company. B) All of these answers. C) To determine which project of several options is the best investment. D) To assess the value of potential capital or technological improvements.

26. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Capital Budgeting In which of the following situations would using the payback method to evaluate an investment be a good idea? A) To assess projects that require little investment when compared to the size of the company. B) All of these answers. C) To determine which project of several options is the best investment. D) To assess the value of potential capital or technological improvements.

27. Free to share, print, make copies and changes. Get yours at www.boundless.com Capital Budgeting Which of the following disadvantages of the payback method can be rectified? A) The payback method ignores cash flows beyond the payback period. B) The payback method does not consider opportunity cost. C) The payback method does not account for the time value of money. D) The payback method does not gauge the risk of an investment.

28. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Capital Budgeting Which of the following disadvantages of the payback method can be rectified? A) The payback method ignores cash flows beyond the payback period. B) The payback method does not consider opportunity cost. C) The payback method does not account for the time value of money. D) The payback method does not gauge the risk of an investment.

29. Attribution Wikipedia. "Payback period." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Payback_periodCC BY-SA 3.0http://en.wikipedia.org/wiki/Payback_period Wikipedia. "Modified internal rate of return." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Modified_internal_rate_of_returnCC BY-SA 3.0http://en.wikipedia.org/wiki/Modified_internal_rate_of_return Wikipedia. "cost of capital." CC BY-SA 3.0 http://en.wikipedia.org/wiki/cost%20of%20capitalCC BY-SA 3.0http://en.wikipedia.org/wiki/cost%20of%20capital Wiktionary. "return." CC BY-SA 3.0 http://en.wiktionary.org/wiki/returnCC BY-SA 3.0http://en.wiktionary.org/wiki/return Wiktionary. "Opportunity cost." CC BY-SA 3.0 http://en.wiktionary.org/wiki/Opportunity+costCC BY-SA 3.0http://en.wiktionary.org/wiki/Opportunity+cost Wikipedia. "Payback period." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Payback_periodCC BY-SA 3.0http://en.wikipedia.org/wiki/Payback_period Wikipedia. "Payback period." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Payback_periodCC BY-SA 3.0http://en.wikipedia.org/wiki/Payback_period Wiktionary. "cumulative." CC BY-SA 3.0 http://en.wiktionary.org/wiki/cumulativeCC BY-SA 3.0http://en.wiktionary.org/wiki/cumulative Wikipedia. "discounted payback period." CC BY-SA 3.0 http://en.wikipedia.org/wiki/discounted%20payback%20periodCC BY-SA 3.0http://en.wikipedia.org/wiki/discounted%20payback%20period Wikipedia. "Modified internal rate of return." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Modified_internal_rate_of_returnCC BY-SA 3.0http://en.wikipedia.org/wiki/Modified_internal_rate_of_return Wikipedia. "Payback period." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Payback_periodCC BY-SA 3.0http://en.wikipedia.org/wiki/Payback_period Wikipedia. "time value of money." CC BY-SA 3.0 http://en.wikipedia.org/wiki/time%20value%20of%20moneyCC BY-SA 3.0http://en.wikipedia.org/wiki/time%20value%20of%20money Wikipedia. "cost of capital." CC BY-SA 3.0 http://en.wikipedia.org/wiki/cost%20of%20capitalCC BY-SA 3.0http://en.wikipedia.org/wiki/cost%20of%20capital Wiktionary. "Opportunity cost." CC BY-SA 3.0 http://en.wiktionary.org/wiki/Opportunity+costCC BY-SA 3.0http://en.wiktionary.org/wiki/Opportunity+cost Wikipedia. "cost of capital." CC BY-SA 3.0 http://en.wikipedia.org/wiki/cost%2520of%2520capitalCC BY-SA 3.0http://en.wikipedia.org/wiki/cost%2520of%2520capital Wikipedia. "Payback period." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Payback_periodCC BY-SA 3.0http://en.wikipedia.org/wiki/Payback_period Wikipedia. "Modified internal rate of return." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Modified_internal_rate_of_returnCC BY-SA 3.0http://en.wikipedia.org/wiki/Modified_internal_rate_of_return Free to share, print, make copies and changes. Get yours at www.boundless.com Capital Budgeting

30. Wiktionary. "Opportunity cost." CC BY-SA 3.0 http://en.wiktionary.org/wiki/Opportunity+costCC BY-SA 3.0http://en.wiktionary.org/wiki/Opportunity+cost Wikipedia. "time value of money." CC BY-SA 3.0 http://en.wikipedia.org/wiki/time%2520value%2520of%2520moneyCC BY-SA 3.0http://en.wikipedia.org/wiki/time%2520value%2520of%2520money Wikipedia. "Payback period." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Payback_periodCC BY-SA 3.0http://en.wikipedia.org/wiki/Payback_period Answers.com. "How do you calculate discount payback period." CC BY-SA http://wiki.answers.com/Q/How_do_you_calculate_discount_payback_periodCC BY-SA http://wiki.answers.com/Q/How_do_you_calculate_discount_payback_period Wikipedia. "Weighted average cost of capital." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Weighted%20average%20cost%20of%20capitalCC BY-SA 3.0 http://en.wikipedia.org/wiki/Weighted%20average%20cost%20of%20capital Free to share, print, make copies and changes. Get yours at www.boundless.com Capital Budgeting