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

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Payback period is a simple method of project appraisal that focuses on the length of time it takes for a project to generate sufficient cash flows to recover its initial investment. This approach is particularly popular among small firms that may face financing or liquidity constraints, as it provides a quick and straightforward way to evaluate the feasibility of an investment without requiring complex financial calculations. By focusing on the payback period, firms can make more informed decisions about which projects to pursue and how to allocate their limited resources.

Financing Pressure or Liquidity Can Explain the Popular Use of Payback