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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Name and discuss three possible reasons that the payback period is used to help make capital investment decisions.

To determine

Explain three reasons which prove that the payback method is helpful in making capital investment decision.

Explanation

Payback Period:

The time taken by an investment to recover its original value is known as payback period. It is calculated by dividing the original amount of investment by annual cash flow from the investment.

The three reasons are as follows:

  • Risk minimization: The projects with shorter payback period have less risk associated with them...

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