Benefits and limitations of the payback and net present value methods of capital investment appraisal
Both payback and net present value (NPV) help businesses judge whether a large investment is worthwhile. Each method has strengths and weaknesses that affect how reliable its answer is.
Real World
A small bakery choosing between two new ovens might prefer payback because it needs cash quickly, while a large firm like Unilever would favour NPV when deciding on a £200 million factory because it captures the full return over the project's life.
Exam Focus
Structure answers as paired points — state a benefit or limitation then immediately contrast it with the other method for easy comparison marks.
Essay Framework
Use PEEL to structure every paragraph. Tap each step for guidance and an example.
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