Accounting › Section X · Capital budgeting decisions › Topic X.2
Payback and accounting rate of return
Before anyone discounts a cash flow, two quick tests ask how fast a project returns its cost and how much profit it earns on the money put in. They are simple, widely used for screening, and blind to the timing of money in ways every manager should understand.
In this topic
- Two quick tests
- Payback with even cash flows
- Worked example: payback with even flows
- Payback with uneven cash flows
- Worked example: payback with uneven flows
- What payback misses
- The accounting rate of return
- Worked example: ARR on two bases
- ARR with uneven income, and its limits
- Common mistakes to avoid
- Key takeaways
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