Final answer:
The payback period method allows lower management to make smaller everyday financial decisions effectively. The payback period is a financial technique that helps evaluate the feasibility and profitability of different projects or investments. It calculates the amount of time required for an investment to recover its initial cost.
Step-by-step explanation:
The payback period method allows lower management to make smaller everyday financial decisions effectively.
The payback period is a financial technique used to determine the amount of time required for an investment to recover its initial cost. It is calculated by dividing the initial investment by the expected annual cash inflows. Decision-makers can use the payback period to evaluate the feasibility and profitability of different projects or investments.
For example, if a company is considering two projects, Project A with a payback period of 2 years and Project B with a payback period of 4 years, lower management could make the decision to prioritize Project A because it has a shorter payback period, allowing for a quicker return on investment.