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Question8,9 Chapter 2
Question8,9 Chapter 2
Question8,9 Chapter 2
Advantages Disadvantages
1) Simple to use and easy to understand 1) Excepting risk , all nonmonetary factors will be
2) Determine the cash flows by using ignored
available accounting data
2) Non discounting models will not consider
3) Business decision makers can understand
timing of the cash flows and the time–value of
model output easily
money.
4) With a few exceptions, model output is on 3) There will be bias toward the short run if
an “absolute” profit/profitability scale and models reduce cash flows to present
allows “absolute” go/no-go decisions. 4) Payback-type models ignore cash flows more
5) Some profit model can be used to calculate than payback period
the risk of project 5) Multiple solution can be resulted from the
internal rate of return model
6) In the early stages of project, the errors of input
data can be so sensitive
Question 8