Demerits of pay back method, Financial Management

Assignment Help:

Demerits of Pay Back Method:-

(i) It ignores the Cash Flows after the Pay Back Period: - The main shortcoming of this method is that it completely ignores all cash inflows subsequent to the payback period.

(ii) It ignores the Time Value of Money: - Another deficit of the payback method is that it ignores the time value of money. This method delight a rupee received in the second or third year as valuable as a rupee received in the first year.

(iii)It doesn't give the Accept-Reject Decision in case of single project: - If presume the payback period is 4 years the method doesn't provide an answer as to whether the project will be accepted or rejected.

(iv) It ignores cost of Capital: - Cost of capital isn't taken into consideration under this method.

(v) It disregards the Profitability of a Project.


Related Discussions:- Demerits of pay back method

Risk-bearing economies of scale, a) Product portfolio refers to the diversi...

a) Product portfolio refers to the diversity of the different product lines produced by a business. In this case, Mattel's product portfolio includes: board games, toy cars, cuddly

Assets allocation, Assets Allocation: The investment pattern above shou...

Assets Allocation: The investment pattern above should be followed as under: Fresh accretions to the fund and redemption amounts of investments made earlier should be inv

Budgeting, Budgeting: All business owners should recognise and understa...

Budgeting: All business owners should recognise and understand the importance of preparing and maintaining a financial budget for their business. Budgets are an essential fi

The time value of money , Calculate the present value and determine the npv...

Calculate the present value and determine the npv, Financial Management. Assume today is 3 December 2009. Helen is 30 years old and has a Bachelor of Business. She is currently em

13 basic ratios, What its the net income? Total current assets, plant and e...

What its the net income? Total current assets, plant and equipment, net plant and equipment, our net account receivable?

., give and explain the seven sources of finance

give and explain the seven sources of finance

Credit spread risk, A credit spread refers to the difference in inter...

A credit spread refers to the difference in interest rate between a corporate bond and a comparable maturity government bond. Suppose interest rate on a five-year

Enumerate the securities and investment analysis, Enumerate the Securities ...

Enumerate the Securities and Investment Analysis Purchase of bonds, stocks and othersecurities involve analysis and techniques which are highly specialized. An investorshoul

Assessing creditworthiness of an issuer of bond, Following are the areas an...

Following are the areas an analyst should consider while assessing the creditworthiness of an issuer. 1. Security Limitations: The bond indenture shoul

Calculate the future value of annuity, 1.  An investor is thinking of inves...

1.  An investor is thinking of investing in a recurring deposit scheme that offers an interest rate of 12% per annum. The investment that he is planning is for the higher education

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