Friday, August 9, 2019
Resonse to comment W4CT and CE Essay Example | Topics and Well Written Essays - 250 words
Resonse to comment W4CT and CE - Essay Example The payback period gives the manager the amount of year it takes to break even. The payback method allows managers to assess a capital project quickly and make operating decisions based on the results. If the payback period is longer than what the company can afford then the project must be rejected. The reason a manager should accept a project with above an above cero NPV is because the metric ensures that the firm will generate money taking into considerations the time value of money. As you mentioned in your response the use of the NPV method lowers the risk of managers of accepting projects that could be unprofitable. The great thing about using the NPV method to evaluate projects is that this method provides results that are unbiased due to the fact that the NPV mathematical methodology is flawless. If the NPV results states that a project has a negative NPV results this is undeniable prove that the project will not bring a company any benefits. If a manager does not use any pro ven capital budgeting techniques such as NPV the manager is being irresponsible and his work as a manager can be considered irresponsible and incompetent. DQ2 Managers must use financial capital budget techniques to evaluate whether to accept or reject a project.