What are the merits of payback period method? Payback method has the following merits:

4 years ago
Financial Management

1. It is very simple—both in concept and application. It has no dubious assumptions nor any cumbersome calculations.

2. It favours projects which generate substantial cash flows in the initial years and discriminates against projects which bring substantial cash flows in the later years. Thus the payback method can be used to weed out risky propositions

3. As it emphasizes faster/earlier cash flows it is desirable for a company with a liquidity crunch.

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Sanisha Maharjan
Sanisha Maharjan
Jan 18, 2022
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