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Chapter 10

The Payback method is simple to Is not a measure of absolute profitability.
understand.

Selecting projects on the basis of Ignores the time value of money (a
payback may help reduce the risk of discounted payback period may be
liquidity problems. calculated to overcome this problem).

Uses cash flows, not subjective Does not take into account cash flows
accounting profits. beyond the payback period.

Emphasises the cash flows in the earlier
years.

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