The following are disadvantages of using the payback rule except the rule
A)ignores all cash flow after the cut-off date.
B)does not use the time value of money.
C)is easy to calculate and use.
D)does not have the value additivity property.

Question

Quizplus · Accepted Answer

The disadvantages of using the payback rule are A, B, and D. The payback rule only considers the time it takes to recoup the initial investment, disregarding any cash flows beyond that point. It also does not account for the time value of money, meaning that future cash flows are not discounted to their present value. Finally, it does not have the value additivity property, meaning that the payback period for a project can change if changes are made to the project's cash inflows and outflows. Despite these drawbacks, the payback rule is still often used because it is a simple and easy-to-understand metric for evaluating projects.

The Following Are Disadvantages of Using the Payback Rule Except