The NPV method is preferred to the payback period method as a project evaluation criterion because the payback period rule ignores the impact of:
I.the initial cost
II.the timing of cash flows prior to the payback period
III.any cash flows beyond the payback period

Question

Quizplus · Accepted Answer

The payback period method does not ignore the initial cost; it focuses on how quickly that cost can be recovered. However, it does ignore the timing of cash flows before the payback period is reached (as it only measures how long it takes to recover the initial investment) and any cash flows that occur after the payback period, which can significantly affect the project's overall value.

The NPV Method Is Preferred to the Payback Period Method