Size
Type of Benefit Expected

Cost Reduction

Expansion Project

New Product Introduction

Mandated Projects
By Degree of Dependence

Independent Projects
 Mutually Exclusive Projects
 Contingent Projects
Non discounted Cash Flow Criteria
Payback Period
 The payback period is the number of years needed
to recover the initial cash outlay. This
criterion
measures how quickly the project will return
it's
original investment
 The accept  reject criterion is whether or not the
project's payback period is less than or
equal to
the firm' s maximum desired payback period.
Example:
Year
AfterTax Cash Flow
1
$2,000
2
$4,000
3
$3,000
4 $3,000
5
$1,000
 If the initial cash outlay was $10,000, and the firm's
maximum desired payback period is 3 years.
The
payback period for this project will be
3.3333 years,
and the firm will reject the project as
3.333333 is
greater than 3 it's maximum acceptable payback
period.
 The Payback Period does not take into account the
time
value of money
 The Payback Period ignores any
cashflows that occur
after the payback period