Merits of payback period

Merits of payback period:

1. It is easy to operate and simple to understand
2. This method is preferred on the ground that returns beyond three or four years are so uncertain that it is better to disregard them altogether in a planning decision.
3. It is appropriate for industries with a high rate of technological obsolescence in which the receipts beyond PB are regarded as totally uncertain.
4. This method is also useful to a concern which is short of cash and is eager to get back the cash invested in a capital expenditure project.
5. As the method considers the cash flows during the payback period of the project, the estimates would be reliable and the results may be comparatively more accurate.

Despite the simplicity and ease of operation, this method suffers from several drawbacks.