3.1 Static methods

These methods suppose that the value of money is constant throughout time, due to this the cash flows have the same value even though they were created in different time periods.

The reason why these methods should not be used is because money's value changes throughout time due to the interest rate and inflation.

Payback time: The main purpose of this method is determinate the time that it takes to recover the initial outlay.

In order to calculate it we sum up all the cash flows until we reach the initial outlay, this way we can know the number of years that it took to recover it.

To select an investment using this criterion, we will choose the one that took less years to recover the initial outlay.

Cash flow per monetary unit invested: This offers an idea of the full profitability of the investment.The bigger tis the value of r the better will be the investment. If r is under 0, means the initial outlay was not recovered

Average cash flow per monetary unit invested: It consists of looking for an approach of the annual profitability.

The bigger tis the value of r the better will be the investment. If r is less than 1/n, the investment will be rejected.