The bailout payback method does not determine the recovery period from normal operations. It determines the recovery period if operations are abnormal.
The bailout payback method recognizes the possibility that a project may be ended prematurely and the equipment sold. The after-tax salvage value of the equipment at various dates is included in the cash inflows of the project through the same dates. The use of the bailout payback method gives an indication of the result of terminating the project early.
The bailout payback method does not eliminate the disposal value from the payback calculation, but it incorporates it at various points in the calculation.
The bailout payback method, like the payback method, does not incorporate the time value of money.
|
