Financing pressure or liquidity can explains the popular use of payback period in project appraisals for small firms.

Question

Quizplus · Accepted Answer

Small firms often face financing pressure or liquidity constraints, and therefore tend to prioritize shorter payback periods to ensure speedy recovery of their investments. This is because shorter payback periods require less time to generate positive cash flows, which can help alleviate financing pressure and ensure more liquid assets.

Financing Pressure or Liquidity Can Explains the Popular Use of Payback