Question

A manager uses the Payback Period alone to decide if a project should be implemented. He argues that this method alone can be used to make decisions about capital projects. Do you agree or disagree.

Answer 1

answer is disagree

the payback period method is one the methods of seleciton of the project. this is easies method and is to understnad. but there are other methods can be used to make decision

net present value method this is the widest used method of slection of any project. this is the present value of the cash flow in the given life of the project at a discount rate. if the net present vlaue is positive the project is accetable ohter wise it is rejected

internal rate of return

in this method the discount rate is calculated at which the future cash inflow value will be equal to the net initial investment. if the expected rate of return is lower than the irr then the project is accepted other wise rejected.

irr gives the highest discount rate of any given project

MIRR

THIS is similar to the IRR BUT in this method the modified reinvestment rate is used.

disconted payback period method

payback of any project is discounted and used to calculate the period of payback of the project.