PAYBACK INTERPRETATION Flashcards
1
Q
What is payback
A
Payback is a method of investment appraisal that calculates the length of time in years and months before the initial cost of investment is returned to a business.
2
Q
Interpretation of payback
A
A shorter paybacl periof is preffered. Once payback occurs, a business starts to make profit
Longer payback means more risk. It is more difficult to predict conditions further into the future
Assumes cash flow is equal throughout the year which doesnlt necassarily hold true
3
Q
What are the pros of payback
A
Relatively easy to calculate and understand
Maybe more accurate than other methods due to its simplicity
4
Q
What are the disadvantages of payback
A
Does not calculate profitablity of projects
Does not account for seasonal fluctuations in sales
