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Question: Discuss the differences, advantages and disadvantages between payback, IRR, ARR, and NPV.
Answer: Two particular methods of comparing the attractiveness of projects have become known as the “traditional techniques”. These are ARR (Accounting rate of return) and payback. I shall be discussing these first.
Payback
The payback period is the length of time (in years) it takes to recover the cash invested a project. A projects annual cash flows are used to determine the payback period.
An example of how to calculate the payback period for a project that cost £570,000 is shown below....(short extract)
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- Subject: Business and Management
- Course: Accountancy and Finance
- Level: Degree
- Year: 2nd/3rd
- Mark: 64%
- Words: 1121
- Date submitted: March 21, 2009
- Date written: Not available
- References: No
- Document type: Essay*
- Essay ID: 1066
