Advantages, 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 -7

5.2 ADVANTAGES, THE PAYBACK METHOD

The main capital of the investment is reserved at the payback method.

• Sometimes payback can increase liquidity if it is before the time.
• While payback period is more than its time, there can be investment risk.
• Most of time, short term predictions are more trustworthy than long term.
• Payback period calculation is rapid and easy.
• Payback method is clear and simple to understand.

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.

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 -5

1.   THE PAYBACK METHOD

Payback method usually use for the first screening of the projects. When we investigate the projects, we need to examine these questions at first:

• How long will its pay back period take after the cost of the project?
• Is there any payback time on target? Because it will show the acceptance of the project. If its payback time is more than their estimates, the organization can refuse the project.
• On the other hand, there is no only pay back period to estimate the investment appraisals. Payback is the first step to examine the process. If you know the pay back period, it will help you to evaluate more detailed project appraisal methods.
• Calculation time of payback period is very important because we need to calculate the cash returns of projects and have to know profits before the depreciation. Calculation of cash flows