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

Calculate the net present value of a purchase of earthmover, Your construct...

Your construction company is evaluating the proposed acquisition of a new earthmover. A consulting company you hired developed the following analysis last year at a cost to you of

Routine functions, Routine functions For the efficient execution of the...

Routine functions For the efficient execution of the managerial finance functions, routine functions have to be executed. Such decisions concern procedures and systems and incl

Participants in secondary market, PARTICIPANTS IN THE SECONDARY MARKET ...

PARTICIPANTS IN THE SECONDARY MARKET The players in the secondary capital market include: Individual Investors (Public). Companies. Mutual funds. Financial Insti

Cash forecasting and budget, Cash Forecasting and Budget: It is used t...

Cash Forecasting and Budget: It is used to get an idea of what a cash forecasted budget any might expect to earn in a fiscal year. You take last year's expenses, increased by

Determine the management buy-outs, Determine the Management buy-outs ...

Determine the Management buy-outs Management buy-outs (MBOs) The management of company buy out the shareholders. Management will usually require financial backers (ventu

Factors affecting working capital needs of firms, FACTORS AFFECTING WORKING...

FACTORS AFFECTING WORKING CAPITAL NEEDS OF FIRMS A large no. of reasons influences the working capital requirements of firms.  a number of them are as follows: 1. Nature of

Accounting principle, Accounting Principle Accounting principles are t...

Accounting Principle Accounting principles are the primary assumptions, rules of operation, and necessary features that make up the framework for the construction of accountin

Market value ratios, Market Value Ratios Price-Earnings Ratio ...

Market Value Ratios Price-Earnings Ratio P/E ratio shows how much investors are willing to pay for earnings per share of the company. Market-to-Bo

Excess of the inadequate of the working capital, Every business concern sho...

Every business concern should have neigh adequate capital to run the business operations it should have neither redundant nor excess working capital non inadequate or Shortage of

International markets, Explain the random walk model for exchange rate fore...

Explain the random walk model for exchange rate forecasting. Can it be consistent with technical analysis?

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