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Business
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Number of pages / Number of words: |
7 / 1795 |
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It is very easy to apply and understand for decision makers even who have not been trained in finance discipline. In this scenario, only one investment opportunity is available, payback period does not show its optimal usefulness as it is good in making comparison between investments by showing which one can be recovered quicker...
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First, payback is calculated using cash flows but not accounting profits. Therefore management is unable to manipulate the income by adjusting accounting policies. Moreover, future uncertainty is implicitly considered in payback period if decision maker cares about risk, then the shorter payback period would be preferred over longer ones...
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