Disadvantages, The Payback Method

*Note : I am going to add my Corporate Strategy Assigment when i was at the university about Financial Investment Methods. Enjoy it :)

PART -6

5.1 DISADVANTAGES, THE PAYBACK METHOD

There are some disadvantages of payback method as below:

• Payback method denies the cash flows timing during the period.
• At the end of the payback period, method does not accept the cash flows. Therefore, the total project goes back.
• Payback method denies the money’ time value.’ More complicated appraisal techniques require’.  As a sample, 1 pound’ worth will be more than 1 pound for a year. That is why organization or money owner has to use the money immediately or can invest the money by using current interest rate to get more return one year later.
• This technique also does not differentiate between projects in a same payback time.
• Investors make cut off at the payback period randomly.
• One of the disadvantages of payback period is to cause too much investment projects in short term.
• The risk of the cash flow timing is projected however; variability is not estimated at the projects in payback method.