Question

Under what circumstances could payback and discounted payback be equal and what are the drawbacks of these two methods?

Answer 1

Part 1

Both methods :

1. ignore the cashflows after the Payback Period

Part 2

Drawback :

This means projects with early cashflows are preferred to those with late cashflows.

Step-by-step explanation:

The Payback period is the length of time required for the total cashflows to equal the initial capital investment.

Both the payback and discounted payback ignore the cashflows after the Payback Period.