What re the primary shortcoming of the Payback Period (3 Marks)
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10 marks
(i) Calculate the Payback Period for each project.
(ii) Calculate the Net Present Value (NPV) of each project.
10 Marks Question
Book Example
For example, the terms of 2/10, net 30 may be quoted for a certain customer.
– This means that the customer has 30 days from invoice date to pay the full
amount.
– If payment is made within 10 days, a 2% discount can be taken
• A buyer places an order for $1,000 under the terms 2/10, net 60. He has the option of
– paying $1,000 x (1 - .02) = $980 in 10 days, or
– paying the full $1,000 in 60 days.
• In general, the credit terms are interpreted as:
(take this discount off the invoice price)/(if you pay in this many days ), (else pay the
full amount in this many days)
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