3. Payback period [LO 9.2] Concerning payback:

1. Describe how the payback period is calculated, and describe the information this measure provides about a sequence of cash flows. What is the payback criterion decision rule?

2. What are the problems associated with using the payback period to evaluate cash flows?

3. What are the advantages of using the payback period to evaluate cash flows? Are there any circumstances under which using payback might be appropriate? Explain.