Principles of Corporate Finance

Payback

Example

Examine the three projects and note the mistake we

would make if we insisted on only taking projects

with a payback period of 2 years or less.

C - 2000 1800 500 0

B - 2000 500 1800 0

A - 2000 500 500 5000

Project C 0 C 1 C 2 C 3 PaybackPeriod NPV@ 10%