Answer: According to the payback method, the answer is yes, because the sum
of the net income for the first 4 years is greater than the initial investment outlay.
$10,000 + $25,000 + $20,000 + $20,000 ≥ $75,000
Although the method is widely used, easy to compute, and provides some control
over risk exposure, it is not a measure of project profitability (e.g., cash inflows
from years 5 and 6 are not included in the analysis in the previous example),
and it does not adjust for the timing of cash inflows. The time value of money
is the focus of sophisticated analysis techniques.
4.12 SOPHISTICATED SELECTION TECHNIQUES
4.12.1 Background
Cost-benefit techniques ...