(b) (i) State FOUR reasons why payback period is widely used by organisations in the capit

Question

(b) (i) State FOUR reasons why payback period is widely used by organisations in the capital investment

appraisal process. (2 marks)

Answer 1

正确答案：
(b) (i) Payback period is widely used by organisations in the capital investment appraisal process due to the following reasons:
– It is easy to calculate and understand
– There is a lack of understanding of more sophisticated techniques which take into consideration the time value of
money
– Payback may be expedient for organisations who need to recover their capital outlay quickly due to the fact that
they are experiencing liquidity problems
– Payback is appropriate for smaller investments which do not warrant the use of more sophisticated techniques
– Payback reduces uncertainty by focusing on nearer and therefore more certain cash flows.