Why is payback often used as the sole method of analyzing a proposed small project?
A) Payback considers the time value of money.
B) All relevant cash flows are included in the payback analysis.
C) The benefits of payback analysis usually outweigh the costs of the analysis.
D) Payback is the most desirable of the various financial methods of analysis.
E) Payback is focused on the long-term impact of a project.

Question

Why is payback often used as the sole method of analyzing a proposed small project? 
A) Payback considers the time value of money. 
B) All relevant cash flows are included in the payback analysis. 
C) The benefits of payback analysis usually outweigh the costs of the analysis. 
D) Payback is the most desirable of the various financial methods of analysis. 
E) Payback is focused on the long-term impact of a project.

Quizplus · Accepted Answer

The payback method is often used for small projects because it is simple and straightforward, making the benefits of using it (such as ease of understanding and minimal calculation requirements) outweigh the costs associated with more complex analyses. It does not consider the time value of money, include all relevant cash flows, focus on long-term impacts, or is necessarily the most desirable method in all situations, which eliminates the other options.

Why Is Payback Often Used as the Sole Method of Analyzing