Accounting

[kashauna1077]

Why would the cash payback method understate the attractiveness of a project with a large salvage value?

[HaizeyDays]

I think this is because that Payback method only looks at net cash inflows over an arbitrary period.
If I buy an asset for a �100,000-00, which in ten years time I can still sell for �50,000-00 say, assuming that thie net cash inflows cover the outlay in say five years, the salvage value will not be taken into account, thus understating the attractiveness of the project.

I'm currently studying for the AAT technician level, but I am not the best student in my class by far, so don't take the above as gospel will you!?!