Český finanční a účetní časopis 2013(2):84-95 | DOI: 10.18267/j.cfuc.342

Limit of Payback Period Applicability at Creation of Guaranteed Redemption Prices

Josef Valach
Prof. Ing. Josef Valach, CSc. - profesor; Katedra financí a oceňování podniku, Fakulta financí a účetnictví, Vysoká škola ekonomická v Praze, nám. W. Churchilla 4, 130 67, Praha 3; <valach@vse.cz>.

Payback period is not suitability criterion for evaluation great part of investment projects and also for creation guaranteed redemption price of energy. It ignores time factor and also cash flows after the cut-off date. For projects with greater internal rates of return and with longer economic lives it can be proved that evaluation by payback period and by internal rate of return is significantly approximate. Interest payments from long debt capital should not be included in project cash flow. It can be used precisely valuation by adjusted net present value or by adjusted weighted average cost of capital.

Keywords: Payback Period; Internal Rate of Return; Interest from long debt capital; Financial Structure; Adjusted weighted average cost of capital.
JEL classification: G31, G34

Published: June 1, 2013  Show citation

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Valach, J. (2013). Limit of Payback Period Applicability at Creation of Guaranteed Redemption Prices. Czech Financial and Accounting Journal, 2013(2), 84-95. doi: 10.18267/j.cfuc.342
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