A Comment on Payback

Morris Mendelson

Journal of Financial and Quantitative Analysis, 1971, vol. 6, issue 4, 1159-1160

Abstract: In a recent note in this journal, Professor Levy discussed the relative merits of the payback method and the discounted rate-of-return (IRR) method. In examining the relationship between K (IRR) and Kp (the reciprocal of the payback), he reaffirmed that the two were approximately equal based on the assumption that:(1) annual earnings were the same every year, and(2) ,where N is the life of the asset.

Date: 1971
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