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Hi, In my bpp book, one of the drawbacks mentioned about the payback method is that it ignores the timing of cash flows within the payback period. Could you explain to me what it means?
Many Thanks!
Suppose the investment is 30,000 and there is cash receipt of 10,000 in the first year and 20,000 in the second year. The payback period is 2 years.
Suppose instead the case receipt is 15,000 in the first year and 15,000 in the second year. The payback period is still 2 years (even though it is better to get more money in 1 year even though it means less in the second year).
This is really Paper MA and is rarely of any relevance in Paper FM. If it concerns you ten do watch the relevant free Paper MA lectures.
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