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The pay back period for project 1 is 2 years and 2 months while the payback period for project 2 is 3 years and 8 months. Judging from the payback period, project 1 is more favorable as there is less risk involved when compared with the risks of project 2. The initial outlay is recovered earlier by project 1. Moreover, the ARR also favors Project 1, therefore the expected profitability of the project is higher than the profitability of project 2.
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