Payback Period, Sensitivity Analysis
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Why is the payback period not a preferred method in the capital budgeting decision-making process? Which decision-making criteria is the best to use for capital budgeting decisions? Why?
What is a sensitivity analysis? How is it determined? How can risk be addressed in the capital budgeting process?
What is an example of a capital budgeting project in an organization with which you are familiar? What are some examples of relevant and irrelevant costs associated with this project?
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1) Payback period is not a preferred method in capital budgeting decisions-making process because it does not take into account the time value of money. Time value of money is an extremely important concept in capital budgeting and by ignoring it, the payback period method does not provide accurate results. The best decision making criteria in capital budgeting is NPV Analysis. ...
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