What are the advantages and disadvantages of payback period?
Advantages of Payback Period
- No need for detailed analysis
- Simple to calculate and understand.
- Adjusts for uncertainty of later cash flows.
- Biased towards liquidity.
Disadvantages of Payback Period
- Time value of money and risk ignored
- Ad hoc determination of acceptable payback period.
- Ignores cash flows beyond the cut-off date.
- Biased against long-term projects.
What is payback period?
What are the other methods of project evaluation?