a. What is the difference between the nominal and present value payback period?

Can
the present value payback period ever be shorter than the nominal payback period?

The nominal payback period and present value payback period are investment appraisal

techniques that are used to evaluate investment projects. The key difference between the two is that the
nominal payback period refers to the length of time required to recover the cost of investment whereas the
present value payback period calculates the length of time needed to recover the cost of investment taking
the time value of money into account. Moreover, their distinction mainly depends on the type of cash
flows used for the computation. In the payback period, normal cash flows are used, but in the discounted
payback period, discounted cash flows are utilized.

The present-value payback period is always longer than the nominal payback period, assuming a
positive rate of interest. This is due to the fact that present-value cash is always less than nominal cash,
and it, therefore, takes longer to receive a fixed amount back in terms of present-value cash rather than in
nominal terms.