Question

A major disadvantage of the payback period method is it A. Is useless as a risk indicator. B. Ignore cash flows beyond the payback period. C. Does not account for time value of money D. Both B and C E. All of the above.

Answer 1

The major disadvantage of the payback period method is that it is useless as a risk indicator, and Ignore cash flows beyond the payback period.

What is payback period method?

The payback period is the amount of time it takes to repay the cost of an investment or to reach the breakeven point for an investor.

Longer payback periods are less desirable, while shorter payback periods are more appealing.

It will only calculate cash flows up to the initial outflow and will not account for the time value of money, the payback period will ignore cash flows beyond the payback period, avoiding the discounting factor.

Therefore, option D is correct

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