Renee Moore 15 Apr 11 1:11 PM MST Companies that have simple projects can use the payback method because this allows for the initial investment of the project to be recovered quicker. Projects that do not require a lengthy period of time for positive cash flow or it changes from year to year are the ones that might want to use the Payback method (“Project”, 2010). Payback method may be used for projects that are relatively safe and have less risk involved due to the fact the method does not take into consideration the time value of money. The payback method ignores the cash flow beyond the policy of the payback period of that company. For example: A company was deciding over several projects for the next year’s budget and the first project was for a new piece of equipment that cost $4,000 with their payback policy established for two years for any major project. In that first year, that new equipment will generate $4000 in positive cash flow, which means that initial investment will have been
This is the end of the preview.
access the rest of the document.