Which of the following statements about the payback period method is true?

Question

Quizplus · Accepted Answer

The payback period method ignores the time value of money, which is a major drawback of this method. This means it does not consider the fact that a dollar received in the future is worth less than a dollar received today due to inflation and opportunity cost of capital. A shorter payback period is generally preferred as it indicates the project will generate positive cash flows earlier, but this is not always the case. The internal rate of return method is generally considered to be more sophisticated and better at decision-making than the payback period method. The payback period method only considers the initial investment and the cash flows until the initial investment is recovered, ignoring any cash flows beyond that point.

Which of the Following Statements About the Payback Period Method