Why is payback often used as the sole method of analyzing a proposed small project?
A)Payback considers the time value of money.
B)All relevant cash flows are included in the payback analysis.
C)It is the only method where the benefits of the analysis outweigh the costs of that analysis.
D)Payback is the most desirable of the various financial methods of analysis.
E)Payback is focused on the long-term impact of a project.

Question

Quizplus · Accepted Answer

Payback is often used as the sole method of analyzing a proposed small project because the benefits of the analysis outweigh the costs of that analysis. Small projects typically have limited resources and low complexity, making payback a cost-effective and straightforward method to evaluate the viability of the project. Other financial methods, such as NPV or IRR, may require more time, resources, and data inputs that are not justified for small projects. Additionally, payback offers a simple way to assess the project's risk by highlighting the time required to recover the initial investment, which is often a critical consideration for small businesses.

Why Is Payback Often Used as the Sole Method of Analyzing