The payback method has all of the following advantages EXCEPT it ____.
A) considers the time value of money
B) determines a firm's financial exposure
C) is easy to calculate
D) determines if the project under consideration will be able to replace the start-up costs.

Question

Quizplus · Accepted Answer

The payback method does not consider the time value of money, which is a major disadvantage of this method. It also does not take into account the cash flows beyond the payback period, making it a short-term analysis. However, it does determine a firm's financial exposure and is easy to calculate, and can provide insight into whether the project can recoup its start-up costs within a certain period of time.

The Payback Method Has All of the Following Advantages EXCEPT