A Method of Evaluating Capital Investment Proposals That Ignore Present Value

When assessing capital investment proposals, traditional methods often rely heavily on present value calculations to gauge potential returns. However, there are alternative approaches that can be valuable, especially in scenarios where present value may be difficult to determine or less relevant. One such method is the Payback Period. This technique evaluates investments based on the time it takes to recoup the initial investment. While it overlooks the time value of money, it offers a straightforward way to assess risk and liquidity. Additionally, Accounting Rate of Return (ARR) is another method that focuses on the profitability of an investment relative to its cost, ignoring the time value of money. This approach is particularly useful for comparing projects with similar lifespans and capital requirements. In this article, we will delve into these methods, exploring their advantages, limitations, and applications in practical scenarios. We'll also provide examples and case studies to illustrate how these methods can be used effectively.