What are the advantages and disadvantages of payback period? (2024)

What are the advantages and disadvantages of payback period?

Payback period advantages include the fact that it is very simple method to calculate the period required and because of its simplicity it does not involve much complexity and helps to analyze the reliability of project and disadvantages of payback period includes the fact that it completely ignores the time value of ...

(Video) Payback Period: Calculation, Advantages and Disadvantages
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What are advantages of payback period?

The payback period is especially useful for a business that tends to make relatively small investments, and so does not need to engage in more complex calculations that take other factors into account, such as discount rates and the impact on throughput.

(Video) Pay back Period Method Advantages and Disadvantages (FM Part-32)
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What is a disadvantage of the payback period rule?

Ignores the time value of money: The most serious disadvantage of the payback method is that it does not consider the time value of money. Cash flows received during the early years of a project get a higher weight than cash flows received in later years.

(Video) Benefits and disadvantages of Payback ARR NPV and IRR
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What are the advantages and disadvantages of discounted payback period?

It helps a company to determine whether to invest in a project or not. If the discounted payback period of a project is longer than its useful life, the company should reject the project. One of the disadvantages of discounted payback period analysis is that it ignores the cash flows after the payback period.

(Video) Advantages and Disadvantages of Payback Period Method || Capital Budgeting.
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What are advantages of payback period quizlet?

Advantages of the payback period include that it is easy to​ calculate, easy to​ understand, and that it is based on cash flows rather than on accounting profits.

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What are the advantages and disadvantages of capital budgeting?

It helps a company in a competitive market to choose its investments wisely. Capital budgeting presents whether an investment would increase the company's value or not. It offers adequate control over expenditure for projects. Also, it allows management to abstain from over-investing and under-investing.

(Video) Drawbacks of Payback Period
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Which is not an advantage of payback period?

Ignores Time Value of Money

This is among the major disadvantages of the payback period that it ignores the time value of money, which is a very important business concept.

(Video) merits and demerits of payback method
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Which of the following is a disadvantage of using the payback period Mcq?

Answer: (A) The time value of money is ignored. It ignores cash flows beyond the payback period.

(Video) Investment Appraisal - Payback Period
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Which of the following is a disadvantage of the cash payback method?

Answer: D. It ignores the expected profitability of a project. A disadvantage of the cash payback technique is that it ignores the expected... See full answer below.

(Video) Discounted Pay back period. Advantages and disadvantages of payback. Traditional Vs discounted PB
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What are the advantages and disadvantages of net present value?

Advantages and disadvantages of NPV
NPV AdvantagesNPV Disadvantages
Incorporates time value of money.Accuracy depends on quality of inputs.
Simple way to determine if a project delivers value.Not useful for comparing projects of different sizes, as the largest projects typically generate highest returns.
3 more rows

(Video) Advantages and disadvantage of payback period | Explained in Urdu
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What are the advantages and disadvantages of investment appraisal?

Advantage: helps in making an investment decision based on net cash flows, their timing, and their opportunity cost. Disadvantage: clumsy to use when comparing two investments of different size or covering different time periods. The time it takes to recoup the initial outlay.

(Video) ADVANTAGES AND DISADVANTAGES OF PAYBACK PERIOD METHOD
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