All 34 Capital Budgeting questions
More in Capital Budgeting
What is the difference between a screening and a preference decision? What is the time value of money and why does it matter in capital budgeting? What is Net Present Value (NPV) and how do you interpret it? What is the Internal Rate of Return (IRR)? What cash flows are relevant in capital budgeting? What is capital rationing? What is the role of residual (terminal) value in appraisal? What is a discount factor and how is it used? What is an annuity and how does an annuity factor simplify appraisal? How does inflation affect capital budgeting, and how is it handled?
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What is the discounted payback period?

Intermediate

Answer

Discounted payback is the time for a project's discounted cash inflows to recover the initial investment. It improves on simple payback by accounting for the time value of money, but still ignores cash flows after the payback point. It shows how long capital is at risk in present-value terms.
Real-world example Using discounted inflows, a project's payback extends from 3 to about 4 years once discounting is applied.

Common follow-ups: How does it improve on simple payback? | What does it still ignore?

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All 34 Capital Budgeting questions