Payback Period Investment Appraisal Technique This is the method of investment appraisal based solely on cash flows and not profit. The payback period shows the number of years over which the investment would be recouped and measures how fast the investor can recover his/her initial investment.
Advantages of Payback period:
- It is simple to calculate and understand
- It least exposes the company to the problem of uncertainty/risks since it focuses on shortness of project payback of the initial outlay.
- The payback period is universally used especially by SMEs.
- It is a fast screening technique especially for the companies that have liquidity problems.
- It uses cash flows and not accounting for profits