PAYBACK PERIOD THECHNIQUE

 PAYBACK PERIOD THECHNIQUE

Using payback period method (PBP)*** RAK expects to recover its initial investment of $100,000 in three (3) years.

2. Compute the payback period for this investment. 2.5 marks
3. Using payback period method, would you be willing to invest in this project? 2.5 marks

• Using both NPV and payback period methods, would you be willing to invest in this project? Why? Why not?        Please explain.                                                 2.5 marks

Suppose there are two projects A and B and you are required to only ONE project to invest in. Also suppose that there a conflict between NPV and PBP. For example, NPV shows that project A has a higher NPV but PBP methods recommends investing in project B. Make a decision, where would you invest? And Why?                                     2.5 marks

 

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