I need some assistance with these assignment. advantages and disadvantages of payback Thank you in advance for the help! Payback period is also an effective capital budgeting technique whereby the break-even point for an investment proposal is calculated. When investment is made in a project, there are no profits earned in the initial few years of operation. Profits are earned after the business achieves break even, where the level of investment made in the project becomes equal to the inflow of cash earned over the years. If the initial investment made in a project $150,000 and the cash flows each year is $50,000. Then the payback period as per the above formula is 3 years. At the end of the third year, the company will be able to recover the entire investment that it has made in the project. From the third year onwards the company would be earning profits upon the project. In case of two or more mutually exclusive projects, the management is seen to select the one which has a lower payback period (Baker and English, 2011).
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