A recent survey showed that in investment appraisal, the popularity of payback as an evaluation method continues to grow in spite of its known drawbacks. Of some 92 per cent of firms which use the method, approximately one half require its calculation for all projects.

(a) What are the main drawbacks to payback in investment appraisal? Briefly examine two other methods that overcome these disadvantages. (8 marks)

(b) Why do you think payback is so popular as a method as compared to the other methods you have examined in (a)?