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Pay-Back Period is the best method to evaluate projects, as it gives accurate information about the expected cash flows for the next coming years.( True or False )
Dear ,
if you mean Payback Period , it is absolutely true . we can forecast the cash flow by estimating the time required to recoup the funds expended in our projects, or to reach the break-even point.
If helpful ! , vote up .
Best Regards .
SHAMEEM
False, pay-back period method fails to take into account the time value of money and does not take into consideration additional cash flow beyond the payback period. Applying single cut off date to every project may result in accepting many marginal project and rejecting good ones.
False, it ignores time value of future cash flows.
Payback period in capital budgeting refers to the period of time required to recoup the funds expended in an investment, or to reach the break-even point. [1] For example, a $1000 investment made at the start of year 1 which returned $500 at the end of year 1 and year 2 respectively would have a two-year payback period. Payback period is usually expressed in years. Starting from investment year by calculating Net Cash Flow for each year: Net Cash Flow Year 1 = Cash Inflow Year 1 - Cash Outflow Year 1. Then Cumulative Cash Flow = (Net Cash Flow Year 1 + Net Cash Flow Year 2 + Net Cash Flow Year 3, etc.) Accumulate by year until Cumulative Cash Flow is a positive number: that year is the payback year.
The time value of money is not taken into account. Payback period intuitively measures how long something takes to "pay for itself." All else being equal, shorter payback periods are preferable to longer payback periods. Payback period is popular due to its ease of use despite the recognized limitations
thanks for invitation
i think answer is : false
we can not say that there is best way to evaluate Projects
there are alot you can work on to expect projects income , cashflow etc
False. The method does not consider a) expected outflows during pay-back period and b) expected inflows / outflows after pay-back period.
False. this method provides the time period in which a venture will achieve break even
False .. payback period only consider the cash flows until the point of break even (until future cash flows equal the initial investment) and doesn't consider any cash flows after that point.
ie: the project may incur a losses after that point so the project should be rejected
Payback period is the oldest method of investment /project appraisal. Now modern techniques are there to evaluate the investment/projects and rates of return. Payback ignores the rate of return and it also does not take into account the cash flows once payback is achieved.
