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Why was the payback technique inadequate on own to assess

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Onyx Inc. has four potential projects to consider for investment in the next financial period. The following table summarises an appraisal of the projects using different analysis tools:

Project

Payback (Years)

NPV(10%)

A

4

-$610

B

3.5

+$2,430

C

3.8

+$3,610

D

4.2

+$4,790

Question i. Why was the payback technique inadequate on its own to assess the four projects?

Question ii. Explain clearly what the +$2,430 Net Present Value (NPV) for project B means.

Question iii. Both payback period and net present value techniques employ cash flows forecast in their analyses. Why do you think that cash flow forecasts are used rather than profit forecasts to assess the viability of the proposed projects? Explain your answer.

Question iv. Explain two non-financial factors that Onyx needs to consider before deciding to approve an investment with a positive NPV

Reference no: EM132712138

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