Good grief, I can't believe I wrote "through into the ring" instead of throw
into the ring.
DW
----- Original Message -----
From: "Duncan Williamson" <[log in to unmask]>
To: <[log in to unmask]>
Sent: Thursday, November 15, 2001 3:44 PM
Subject: Re: AQA a2 business 13.7 understanding criterion levels
> David,
>
> The classic reason why following the Payback Period (PB) result is bad is
> that it encourages short termism: the decision rule for theoretical
> discussions of PB is the shorter it is the better. What this means is that
> management becomes focused on projects that are efficient in terms of
> generating cash but not necessarily in terms of long term optimality.
>
> Moreover, since the PB method has the most significant fault of ignoring
> anything that happens after the PB has been reached (otherwise it would be
> the PB(ish) method!), a project can be undertaken that pays back after,
say,
> two years ... everyone is happy ... the project continues ... the rot sets
> in and cash flows become negative, or certainly take a nose dive, and over
> the life of the project, long term survival is now a problem even though
it
> might have had a PB star rating. Of course, you could argue for
abandonment
> and/or sell off as a going concern, after PB if that's possible; but then
> other considerations come into play.
>
> PB ignores the time value of money, as you well know, so in the case of
> projects that have long PBs, an undiscounted PB will probably give a
> distorted view of a project or projects.
>
> Just a few reasons to through into the ring for being cautious with the
PB.
>
>
>
> Duncan
>
>
>
>
>
> ----- Original Message -----
> From: "David Lewis" <[log in to unmask]>
> To: <[log in to unmask]>
> Sent: Wednesday, November 14, 2001 8:55 PM
> Subject: Re: AQA a2 business 13.7 understanding criterion levels
>
>
> > ----- Original Message -----
> > From: Duncan Williamson <[log in to unmask]>
> > To: <[log in to unmask]>
> > Sent: Friday, November 09, 2001 4:10 PM
> > Subject: Re: AQA a2 business 13.7 understanding criterion levels
> >
> >
> > > David
> > >
> > > This is not meant to be picky: do you also get them to discuss why a
> > payback
> > > of less than the target can be a BAD thing, too?
> > >
> > > Duncan
> > >
> >
> > Actually I don't.
> > At the risk of appearing thick, when might that be the case?
> >
> > Thanks
> >
> > David
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