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A Note on the Payback Method*

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  • Levy, Haim

Abstract

Two measures of investment worth: the discounted-rate-of-return and the payback method will be compared here. Many examples can be found in the literature illustrating the serious limitations of the payback method.According to these examples, an investment proposal may be judged economically undesirable when in actual fact it is highly profitable. This happens when the annual cash flow is not equal, and the investment project promises a relatively large cash flow after the cut-off period.

Suggested Citation

  • Levy, Haim, 1968. "A Note on the Payback Method*," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 3(4), pages 433-443, December.
    • Handle: RePEc:cup:jfinqa:v:3:y:1968:i:04:p:433-443_01
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