The payback method calculates the time required to "pay back" or recover the original investment.
The payback period, usually expressed in years, is the time it takes to earn enough cash receipts from an investment to repay the amount owed.
The benefits of using the pay back method include: a dependable technique, a quick calculation process that is simple to understand, a short term forecast, and a focus on early payback that can improve liquidity.
The limitations of using the payback method include: neglecting the timing of cash inflows during the payback period, neglecting the cash flow produced after the end of the payback period, neglecting the time value of money, and influencing excessive investment in short-term projects.
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