Chapter 26, Problem 15Q

To determine

Cash payback:

Cash payback technique basically tells the length of time in which original investment will be recovered. It is the method which is used to determine the total time period required to recover the initial cost of a capital investment of a project in terms of the net annual cash flow generated by the specific investment. The formula for cash payback technique is as follows.

$\text{Payback}\text{period}=\frac{\text{Cost}\text{of}\text{capital}\text{investment}}{\text{Net}\text{annual}\text{cash}\text{flows}}$

To determine: The advantages and disadvantages of the cash payback technique.