Payback

• Why are real numbers used in the explanation of payback?

  To provide continuity and clarity
• What is the primary goal when calculating payback?

  To determine how quickly the investment cost is recovered
• How do you start calculating payback?

  By laying out the cash flows in a table
• What are the pros and cons of using payback period as an investment appraisal method?

  Pros:

  • Easy to understand
  • Provides a measure of liquidity and cash flow

  
  

  Cons:

  • Does not consider overall returns like ARR or NPV
  • Does not adjust for time value of money like NPV
• What are the other investment appraisal methods mentioned besides payback period?

  ARR and NPV
• If you wanted to calculate the net present value (NPV) of these projects, what information would you need?

  The discount rate
• How does the payback period analysis compare the profitability of the two projects?

  Project 1 has a faster payback period, so it appears better based on payback