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Given the goal of maximization of firm value and shareholders wealth we have stressed the importance...

Given the goal of maximization of firm value and shareholders wealth we have stressed the importance of Net present value (NVP ) and yet many financial decision makers at some of the most prominent firms in the world continue to use less desirable measures such as the payback method. Why do you think this is the case?
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Answer #1

It is true that firm still continue to use Payback method.Following could be the reason:-

1. The first and foremost reason is taht it is very easy and simple to use we dont need lots of calculations, estimation etc

2. If a company is focusing of recovering their cost as soon as possible . this is the best method to analsye the projects as it focuses on time to recover the cash outflows

3 It doesnot need the forecast of discount rate as a slight change in discount rate can make huge differecne in NPV calculation and can change the decsion to accept or reject any projects.

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