PAYBACK PERIOD

Strengths :
• It's an easy way to compare several projects and
then to take the project that has the shortest
payback time.
Weaknesses :
• Ignores the time value of money
• Neglects cash flows received after payback period
• Does not consider a project's return on
investment:
 NET PRESENT VALUE(NPV)
Strengths:
• NPV gives important to the time value of
money
• In the calculation of NPV, both after cash flow
and before cash flow over the life span of the
project are considered
• Profitability and risk of the project are given
high priority
• NPV helps in maximizing the firm’s value
 Weaknesses:
• NPV is difficult to use
• NPV cannot give accurate if the amount of
investment of mutually exclusive projects is not
equal
• It is difficult to calculate the appropriate
discount rate
• NPV may not give correct decision when the
projects are of unequal life
 INTERNAL RATE OF RETURN
Strengths :
• Perfect use of time value of money theory
Time value of money means interest that should
high because it sacrifice of money for specific
time.
• All cash flows are equally important
Its good method of capital budgeting in which
we give important to all the cash flows not
earlier or later.
• Uniform ranking
There is no base for selecting any particular rate
in internal rate of return.
 Weaknesses :
• To understand IRR is difficult
Difficult when real value of IRR will be two
experimental rate because of not equalize
present value of cash inflow with present value
of cash outflow.
• Unrealistic assumption
If we invest out money on this IRR, after
receiving profit, we can easily reinvest our
investment profit on same IRR.