Question

What are the advantages and disadvantages of the Cash Payback Methods?

Answer 1

Cash payback period methods refers to the method in which intial investment is dividend by annual cash inflows. Lower the payback period better is the project

Eplaination

Advantages of Cash payback period

1. It is very simple and east to use as compared to discounted pay back period method.

2. It provides faster and quicker solution to the problem and provided quick desicion.

Disadvantage

1. Major disadvantage of this method is it ignore the time value of money concept and does not discount cash flows to present value.

2. It is not realisitc and does not always provide correct decisions and does not cover all flows.