2003 Volume 12 Issue 1 Pages 41-52
The method evaluating capital project includes payback period methods, accounting rate of return method, net present value method, internal rate of return method, and profitability index method, etc. The discounted cash flow methods such as net present value and internal rate of return are excellent in theory. In practice, the discounted cash flow methods are used in a lot of U.S. companies, while the payback period method, which is not so good in theory, is used in most of Japanese companies. Why do Japanese companies prefer the payback period method?
In this paper, as a part of the researches that study the reasons, first, the characteristics of simple payback period method will be shown in detail. Next, the discounted payback period method advocated by Alfred Rappaport will be reconsidered. Finally, I insist that the premium payback period method means a kind of discounted cash flow method based on the concept of the time value of money in theory.
