- 8 Marks
FM – L2 – Q51 – Introduction to investment appraisal
State two justifications for payback period and one for ARR as investment appraisal techniques.
Question
ZESTA VENTURES
It is said that of all the capital investment evaluation approaches, the Payback (PB) and Accounting rate of return (ARR) methods are widely used in practice. But these methods are not without limitations.
Required:
(a) State TWO justifications of payback period and ONE justification of ARR for their popularity in practice as investment appraisal techniques.
(b) Outline TWO limitations each for payback and ARR, as investment appraisal techniques.
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