However, there are advantages to using the payback period, which are as follows: Simplicity. 2. Managers of such companies use this method to make a quick evaluation regarding projects with the small investment and short payback period. During the year, Kitchen Supply increased its accounts receivable by $130, decreased its inventory by $75, and decreased its accounts payable by $40. The method needs very few inputs and is relatively easier to calculate than other capital budgeting methods. Which of the following is an advantage of the payback method? By using The Balance Small Business, you accept our, Payback Period as a Capital Project Decision Method, Capital Budgeting Decision Method Using Internal Rate of Return, Net Present Value (NPV) in Capital Budgeting, Should You Invest? Which one of the following statements about the payback method of capital budgeting is correct? The payback period for the project A is four years, while for project B is three years. C. The payback method uses discounted cash flow techniques D. The payback method will lead to the same decision as other methods of capital … True or false?

The constant-growth dividend model will provide invalid solutions when a. the growth rate of the stock exceeds the required rate of ret... Capital rationing implies that A) the firm does not have enough resources to fund all of the available projects. The Structure Of Forward And Futures Markets. Use the Profitability Index for Your Business, Calculating Discounted Cash Flows in Payback Period. General Mills just is undertaking an analysis on a new cereal. The method is popularly used by business analysts because of several reasons; 1. Payback period (PBP) is the time (number of years) it takes for the cash flows of incomes from a particular project to cover the initial investment.
In capital budgeting, the payback period is the selection criteria, or deciding factor, that most businesses rely on to choose among potential capital projects. Advantages and Disadvantages of Payback Capital Budgeting Method. Advantages Of Payback Period.

Chron. Advantages of Payback Method. c. It is easy to use. True. _______ is a measure of how much value is created or added by undertaking an investment. In this article, we will be discussing the advantages as well as the disadvantages of the payback period to help you make an informed decision on this capital budgeting method/technique. Which one of the following statements is NOT true about preferred stock? When engaged in a rough analysis of a proposed project, the payback period can probably be calculated without even using a calculator or electronic spreadsheet.
Capital projects can include any large-scale, expensive project such as the purchase of equipment for a new assembly line or construction of a new warehouse. It is mostly expressed in years.

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. Cash inflows from the project scheduled to be received two to 10 years, or longer, in the future, receive the exact same weight as the cash flow expected to be received in year one.

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