What is payback from the financial perspective? Why would a manager choose to use this approach to investment analysis?

What will be an ideal response?

The payback method determines how much time will elapse before the total of after-tax cash flows will equal, or pay back, the initial investment. Even though it is scorned by many academics, the payback method continues to be widely used, particularly at lower management levels. It can be quickly and easily applied and gives decision makers some idea of how long recovery of invested funds will take. Uncertainty surrounds every investment project. The costs and revenues on which analyses are based are best estimates, not actual values. An investment project with a quick payback is not considered as risky as one with a long payback. The payback method also has drawbacks. A major criticism is that it encourages managers to focus on the short run. A project that takes a long time to develop but generates excellent cash flows later in its life usually is rejected under the payback method. The payback method also has been criticized for its failure to consider the time value of money.