Managerial Accounting (15th Edition)

Published by McGraw-Hill Education
ISBN 10: 007802563X
ISBN 13: 978-0-07802-563-1

Chapter 13 - Capital Budgeting Decisions - Questions - Page 606: 13-14

Answer

Payback period is the length of time that it takes for a project to fully recover its initial cost out of the net cash inflows that it generates. The payback period can be used as a screening tool for investment proposals. It is often important to new companies that are “cash poor". And finally, the payback method is sometimes used in industries where products become obsolete very rapidly.

Work Step by Step

As given above
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