MANAGEMENT

Detailed explanation-1: -The payback period is calculated by dividing the amount of the investment by the annual cash flow. Account and fund managers use the payback period to determine whether to go through with an investment. One of the downsides of the payback period is that it disregards the time value of money.

Detailed explanation-2: -Typically, a shorter payback period is considered better, since it means the investment’s risk level associated with the initial investment cost is only for a shorter period of time.

Detailed explanation-3: -The shorter the payback period, the less risky is the project. Therefore, it can be considered as an indicator of risk. Select the correct answer from the options given below: (A) Statement I is true but Statement II is false.

Detailed explanation-4: -NPV (Net Present Value) is calculated in terms of currency while Payback method refers to the period of time required for the return on an investment to repay the total initial investment. Payback, NPV and many other measurements form a number of solutions to evaluate project value.