Effectiviness Of Payback Period Research Assignment Paper (Essay Sample)

Effectiveness of Payback Period Technique
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Effectiveness of Payback Period Technique
Payback period technique is majorly centered on recovery of initial capital used for any given investment (Bierman, JR. & Smidt 2007). Since the payback period is expressed in terms of the time taken for cash invested to match cash generated, only relevant cash flows are included in calculations, items such as depreciation and appreciation are not taken into consideration. Thus it does not require high level of skills as compared to other sophisticated techniques (Acca Global Foundation in Financial Management 2018).
Its popularity comes from its simplicity in terms of understanding, interpretation and application. It is an essential tool in minimizing risks and protecting uncertainties that might occur in the future, for the reason that the shorter the payback period the lower the risk. Also it can assist in enhancing investment analysis (Awomewe, Femi & Ogundele 2008).
Furthermore this technique is specifically vital in weighing project liquidity and quality of capital investments rather than project profitability. In recent past many companies have adopted and increased its use as a secondary measure when dealing with pure profit assessments in investment evaluations (Awomewe, Femi & Ogundele 2008). Most investors use this, when investing in short term investments, where they focus primarily on compensation (Bi...