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Managerial advantages of using payback as a surrogate for NPV.: An article from: Engineering Economist
	Authors: John R. Grinyer, Christopher D. Green Publisher: Institute of Industrial Engineers, Inc. (IIE) Buy New: $5.95 as of 2/10/2012 20:10 MST details In Stock Seller: Amazon.com Format: HTML Language: English (Published) Media: Digital Pages: 21 ASIN: B0008DNIY4 Publication Date: June 22, 2003 Availability: Available for download now



Editorial Reviews: Product Description This digital document is an article from Engineering Economist, published by Institute of Industrial Engineers, Inc. (IIE) on June 22, 2003. The length of the article is 6284 words. The page length shown above is based on a typical 300-word page. The article is delivered in HTML format and is available in your Amazon.com Digital Locker immediately after purchase. You can view it with any web browser. From the author: Existing literature identifies specific situations in which payback methods (PB) can provide precise surrogates for NPV analyses of accept/reject decisions. This paper extends that literature to take explicit account of taxation and of ranking decisions using profitability indices. Nevertheless, NPV can be considered preferable to PB as a basis for maximising stockholder wealth (MSW), because it requires fewer assumptions and provides more information. Yet simple PB continues to be used extensively, which suggests that it has advantages for decision-makers. Some authors suggest that its use reflects managerial short-termism and is inconsistent with MSW. In contrast, this paper proves that (with standard patterns of cash flows, defined risk classes and asymmetrical information) the use of PB instead of NPV should motivate risk-averse subordinate managers to adopt more positive NPV projects. Consequently, the appropriate use of PB can result in more wealth for stockholders than would occur using NPV directly. F urthermore, the use of PB avoids a number of costs and in the appropriate circumstances may therefore be the most cost-effective basis for evaluating investment decisions. Citation Details Title: Managerial advantages of using payback as a surrogate for NPV. Author: John R. Grinyer Publication: Engineering Economist (Refereed) Date: June 22, 2003 Publisher: Institute of Industrial Engineers, Inc. (IIE) Volume: 48 Issue: 2 Page: 152(17) Distributed by Thomson Gale

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