Premium
Payback without apology
Author(s) -
Boyle Glenn,
Guthrie Graeme
Publication year - 2006
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.2006.00158.x
Subject(s) - payback period , investment (military) , net present value , capital budgeting , value (mathematics) , business , economics , capital investment , microeconomics , finance , computer science , production (economics) , project appraisal , political science , machine learning , politics , law
When interest rates are uncertain, the net‐present‐value threshold required to justify an irreversible investment is increasing in the length of a project's payback period. Therefore, slow‐payback projects should face a higher hurdle than fast‐payback projects, just as investment folklore suggests. This result suggests that the widely disparaged use of payback for capital budgeting purposes can be an intuitive response to correctly perceived costs and benefits.