The disadvantages of the payback approach include:
A)cash flows after the payback period are ignored in the calculation
B)payback ignores the time value of money
C)payback fails to provide an objective decision-making criterion
D)all of these

Question

Quizplus · Accepted Answer

All of the given options are the disadvantages of the payback approach. Payback does not take into account the cash flows that occur after the payback period, which can lead to incorrect decisions. Moreover, it ignores the time value of money, which is very important in financial decisions. Lastly, payback fails to provide an objective decision-making criterion because it does not consider all the relevant factors. Therefore, all of these drawbacks make it an unreliable method for making financial decisions.

The Disadvantages of the Payback Approach Include