Payback is frequently used to analyze independent projects because:
A)it considers the time value of money.
B)all relevant cash ﬂows are included in the analysis.
C)it is easy and quick to calculate.
D)it is the most desirable of all the available analytical methods from a ﬁnancial perspective.
E)it produces better decisions than those made using either NPV or IRR.

Question

Quizplus · Accepted Answer

Payback is easy and quick to calculate but it does not consider the time value of money, and it ignores cash flows that occur after the payback period. Therefore, it is commonly used for independent projects where the focus is on the time it takes to recoup the initial investment rather than the overall value of the project. However, for projects where the timing and size of cash flows are critical, more sophisticated methods such as NPV or IRR should be used.

Payback Is Frequently Used to Analyze Independent Projects Because