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Why is an investment more attractive to management if it has a shorter payback period? i...

Why is an investment more attractive to management if it has a shorter payback period? i want answer in 5 to 6 sentences

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Answer #1

Payback Period calculation gives us an idea that how long it will take for a project to recover the initial investment. An investment more attractive to management if it has a shorter payback period because of the following reasons –

· The initial cost of investment get recovers faster if payback period is short

· As we know about time value of money; the value of money gets reduced with time therefore it’s better to get it as early as possible.

· Uncertainty gets reduced regarding the cash inflows for shorter payback period as time is a major factor in uncertainty.

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