Question

You have just completed an analysis of an investment. You used Net Present Value, Profitability Index and Internal Rate of Return. Your boss has just asked you for the payback. What will you tell him/her?

Answer 1

You will tell your boss that you haven't used the payback period because of the following reasons :-

1. It ignores the concept of time value of money and thus the other tools are more appropriate

2. It doesn't takes into account all cash flows and is unsuitable

3. It also ignores the project's return on investment and thus inappropriate

4. It is not realistically fine and ignores profitability

I hope this makes sense and helps you

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