ECONOMICS

Detailed explanation-1: -The payback method is basic to understand and places a heavy emphasis on liquidity. Using the payback method can be appropriate when the time value of money is very low. Non-mutually exclusive alternatives can be accepted at the same time.

Detailed explanation-2: -The payback period is an effective measure of investment risk. The project with a shortest payback period has less risk than with the project with longer payback period. The payback period is often used when liquidity is an important criteria to choose a project .

Detailed explanation-3: -The payback period is the amount of time required for cash inflows generated by a project to offset its initial cash outflow. This calculation is useful for risk reduction analysis, since a project that generates a quick return is less risky than one that generates the same return over a longer period of time.