Will projects that meet a corp’s payback criterion for acceptance necessarily have a positive NPV? No. Projects with shorter paybacks do not necessarily have a positive NPV. Why? Thanks!
Well you can get all these cash flows up front that may satisfy the amount of itme you need to get your $ back, but then later on in the project you might incur all these losses which may not give you a positive NPV.
Discount payback period creteria would be consistent with NPV creteria, Not payback.
here 's another question: shouldn’t you scale them by the amount invested? you subtract the amount invested but the model doesn’t really differentiate between the NPV of a $1M vs. $1B contract if they both give NPV of $100M, for example… basically irrelevent to exam though.
Thanks! Keyword: Payback criterion. To westbruin: NPV model has built in the scale already. As long as corp has big enough capital budget, go for the highest NPV.