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Payback without apology

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  • Glenn Boyle
  • Graeme Guthrie

Abstract

When interest rates are uncertain, the net‐present‐value threshold required to justify an irreversible investment is increasing in the length of a project's payback period. Therefore, slow‐payback projects should face a higher hurdle than fast‐payback projects, just as investment folklore suggests. This result suggests that the widely disparaged use of payback for capital budgeting purposes can be an intuitive response to correctly perceived costs and benefits.

Suggested Citation

  • Glenn Boyle & Graeme Guthrie, 2006. "Payback without apology," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 46(1), pages 1-10, March.
    • Handle: RePEc:bla:acctfi:v:46:y:2006:i:1:p:1-10
    DOI: 10.1111/j.1467-629X.2006.00158.x
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    References listed on IDEAS

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    Cited by:

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    3. Mandy M Cheng & Habib Mahama, 2011. "The impact of capital proposal guidelines and perceived preparer biases on reviewers’ investment evaluation decisions," Australian Journal of Management, Australian School of Business, vol. 36(3), pages 349-370, December.

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