Payback Without Apology

10 Pages Posted: 8 May 2006

See all articles by Glenn Boyle

Glenn Boyle

University of Canterbury - Economics and Finance; Sapere Research Group

Graeme Guthrie

Victoria University of Wellington - School of Economics & Finance

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

Boyle, Glenn and Guthrie, Graeme, Payback Without Apology. Accounting and Finance, Vol. 46, No. 1, pp. 1-10, March 2006. Available at SSRN: https://ssrn.com/abstract=889783 or http://dx.doi.org/10.1111/j.1467-629X.2006.00158.x

Glenn Boyle (Contact Author)

University of Canterbury - Economics and Finance ( email )

Private Bag 4800
Christchurch
New Zealand

Sapere Research Group ( email )

Level 9, Pencarrow House
1 Willeston St
Wellington, 6140
New Zealand

Graeme Guthrie

Victoria University of Wellington - School of Economics & Finance ( email )

P.O. Box 600
Wellington 6140
New Zealand
64 4 463 5763 (Phone)

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