ACCA AFM Topic 1 Discounted Payback and Duration (Quick Shots Series) 2025

This is the ACCA Advanced Financial Management Self Study Companions - Quick Shots Series - Topic 1 Discounted payback and Duration. This topic is heavily tested in the exam, usually as 1 mark for calculation of discounted payback, and 3 marks for duration.
Students usually lost almost 3 marks when they come to the duration concept, the reason is, most students treat these two are the same.
Besides, these topics are not tested alone, ie usually with NPV question, but make sure you WILL select the correct figures from the calculation.

00:00 – Introduction to Investment Appraisal (Discounted Payback Method)
Explanation of investment appraisal and how businesses recover initial investment.

00:23 – Understanding the Discounted Payback Method
Overview of how the method works and its limitations in ignoring cash flows beyond the payback point.

00:49 – Example: Project Comparison (Project 1 vs Project 2)
A comparison of two projects and why the discounted payback period may lead to incomplete analysis.

01:34 – Addressing Payback Limitations: Project Duration
Introduction to project duration as a way to reflect risk and compare projects.

02:07 – Key Concept: Duration vs. Payback
Explanation of how duration measures time to recover 50% of present value and its significance.

02:22 – Exam-Style Question Walkthrough
Introduction to the exam-style project, including the cash flows, sales revenue, and taxes.

02:54 – Excel Demonstration: Calculating Discounted Payback

Summing cumulative cash flows.
Identifying when cash flows turn positive to determine the payback period.
Calculating partial year recovery to find the final discounted payback period (3.32 years).
04:45 – Calculating Project Duration (Step by Step)

Applying the formula to multiply present value by the number of years.
Summing present values and dividing to calculate duration (3.05 years).
05:51 – Interpreting Duration in the Exam
Explaining duration and its significance in reflecting project risk and cash flow recovery.

06:10 – Key Exam Insight: Explaining 50% Recovery
How to secure additional marks by clearly explaining the concept of duration as 50% recovery of present value.

06:39 – Comparison: Payback vs. Duration
Clarifying the distinction between discounted payback (full recovery) and duration (risk measurement).