A major disadvantage of the payback period method is that it
A) Is useless as a risk indicator.
B) Ignores cash flows beyond the payback period.
C) Does not directly account for the time value of money.
D) All of the above are correct.
E) Only answers b and c are correct.

Question

Quizplus · Accepted Answer

The payback period method does not account for the time value of money and ignores cash flows beyond the payback period, making it less useful as a long-term investment analysis tool. However, it can still provide some insight into the speed of return on an investment. This makes option E the best choice as it correctly identifies the limitations of the payback period method.

A Major Disadvantage of the Payback Period Method Is That