Animals & Nature1 min ago
Accounting
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Why would the cash payback method understate the attractiveness of a project with a large salvage value?
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No best answer has yet been selected by kashauna1077. Once a best answer has been selected, it will be shown here.
For more on marking an answer as the "Best Answer", please visit our FAQ.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!?!
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!?!