What are the drawbacks of the payback, Financial Management

Assignment Help:

The drawbacks of the payback approach are as follows

- Payback ignores the overall profitability of a project by ignoring post payback cash flows. In the illustration above the cash flows between 3.5 years as well as the end of the project sum to $80000. To overlook such substantial cash flows is somewhat naïve and as a consequence the method is biased in favour of fast return investments. This can be result in investments which generate cash flows more gradually in the early years but which are overall more profitable being rejected if the payback system is used for investment decisions.

- As among ARR the method ignores the time value of money.

- The payback method in the similar way as ARR offers no objective measure of what is the desirable return as measured by the length of the payback period.

 


Related Discussions:- What are the drawbacks of the payback

State the cash flow from investing activities, Cash flow from investing act...

Cash flow from investing activities The items included in this heading are: Cash payments Cash receipts Acquiring proper

Estimate working capital requirements, Q. Describes Working Capital. Briefl...

Q. Describes Working Capital. Briefly describe the techniques utilized in making working capital forecast or Estimating Working Capital Requirements? Ans:- Meaning of Wo

Mr.Manikanta, can u tell me the various approaches followed by FMCG Compani...

can u tell me the various approaches followed by FMCG Companies in test markets

WACC, Saven Travel Corporation is considering several investment opportunit...

Saven Travel Corporation is considering several investment opportunities in order to diversify its operations. Mr. Saven, president, is trying to determine the firm''''s cost of ca

Active management of portfolio, Investors, who do not believe in Effi...

Investors, who do not believe in Efficient Market Hypothesis (EMH), adopt active management strategies. Such investors incur more search costs (with regard to tim

Why we measure a project''s risk as the change in the cv, Explain why we me...

Explain why we measure a project's risk as the change in the CV. We compute a project's risk as the change in the coefficient of variation for the reason that this focuses on t

Financial reporting, Financial Repor ting The process of prepar...

Financial Repor ting The process of preparing the corporation's financial statements in accordance with generally accepted accounting principles. The statements prepare

Financial management, using the operating cycle and any other financial man...

using the operating cycle and any other financial management knowledge,discuss the applicability of such cycle to poultry business in Uganda(consider broilers)

Convertible and non-convertible bonds, Bonds can also be classified i...

Bonds can also be classified into convertible and non-convertible depending upon whether they carry a conversion feature or not. Convertible bonds are the ones which ca

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd