Simple Payback

The payback for him refers to the amount of time it takes for project proposal period for example and engineer £500,000 in UK machinery and estimated that will be that will lead to a net cash flow over the next five years. The payback period is 4 years. If we are together that cash flows from the project in the first 4 years in a mum’s £500,000

The payback period also be found by calculating the cumulative cash flow. This is the net cash flow each year considering cost of the machine. When the machine is first bought in there is negative cash flow – £500,000 the cost of machine. Next year the cash flow minus operating cost is £100,000 meaning the cumulative net cash flow is – £500,000 + £100,000 = – £400,000 in year 4 it’s zero so all costs have been recovered

Advantages of the payback method:

There are certain advantages to a business of the use of the paper that the truth praises the potential success of an investment

This method is useful when technology changes rapidly as it is important recover the cost of investment for new model openings design. This is true of agriculture industry when new farm machinery is designed and introduced into the market regularly
It is simple to use
Firms might adopt this method if they have cash flow problems this is because the puncture chosen will pay back investment more quickly than others

ARR: Average Rate of Return: Measures the net return each year as a percentage of the capital cost of the investment.

ARR= (NET RETURN(PROFIT) / Capital Outlay (Cost)) * 100

Advantages of the ARR method:

The advantage of this method is that it shows clearly the possibility of an investment project