... investment, as well as being easy to understand. For these reasons it is often used first, before other methods are used, as a method to filter out projects which carry unacceptable risk and return characteristics. Payback shows when the money put into a project is ready for investment, as well as giving some indication of what cash flows in later years will be, as it is reasonable to assume that the cash flow trends beyond the payback period are similar in comparison to those during the payback period. The emphasis with payback is very much placed on the speedy return of investments. This is often considered important, if above all liquidity is thought to be more important than profits. Disadvantages The main disadvantage is the matter that payback ignores the time value of money, neglecting the need to compare future cash flows with the initial investment after they have been discounted to their ...

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