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Why should the payback method of analyzing capital purchases never be used as the sole basis...

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Accounting

Why should the payback method of analyzing capital purchasesnever be used as the sole basis for decision making?.

Considering the amount of uncertainty and risk involved incapital budgeting, what is the point of applying any of the 4analysis techniques to these decisions?

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4.4 Ratings (692 Votes)
Payback is one of the oldest and commonly used methods or explicitly recognizing risk associated with an investment project This method as applied in practice is more an attempt to allow for risk in capital budgeting decision rather than a method to measure profitability Business firms using this method usually prefer short payback to longer ones and often establish guidelines that a firm should accept investments    See Answer
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Why should the payback method of analyzing capital purchasesnever be used as the sole basis for decision making?.Considering the amount of uncertainty and risk involved incapital budgeting, what is the point of applying any of the 4analysis techniques to these decisions?

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