Which method(s)of project analysis is(are)best suited for use by a department manager who has no knowledge of time value of money but can estimate the cash flows of small projects with short lives fairly accurately?
A)Payback
B)Discounted payback
C)Profitability index
D)Net present value
E)Either payback or profitability index

Question

Quizplus · Accepted Answer

The payback method is the best choice in this scenario because the department manager doesn't have knowledge of time value of money and can estimate cash flows accurately for small projects with short lives. Payback period calculates the time required for the initial investment to be recouped from the cash inflows. This method is easy to understand and perform, and it focuses on the time it takes to recover the initial investment rather than on the total return. Therefore, the payback method is a practical and suitable method for a department manager to analyze small projects with short lives.

Which Method(s)of Project Analysis Is(are)best Suited for Use by a Department