Characteristics of Payback Period
Amount of
time required for investment to recover.
1.
Measurement Risk
It is measurement
of risk in terms of timing. It shows that how long a project will take to
recover its initial investment. It is very important measure in risky project.
2.
Easy to Calculate & Understand
Payback period
is very easy to calculate and understand and does not require complex calculation.
3.
Little information Project feasibility
Payback period put a little light on the over feasibility of
a project and just focus on the timing of the recovery, therefore payback
period alone dost not sufficient information for investment related decisions.
4.
Ignore Cash flow after recovery
Payback period is interested in only those cash flows which
takes place till the time of recovery ,once the investment is recovered ,
payback period calculation ends.
