A disadvantage of the payback statistic is that:
A)it does not reflect the time value of money.
B)it does not give an indication of the project's riskiness.
C)it does not consider cash flows beyond the payback period.
D)All of these are disadvantages of payback.

Question

Quizplus · Accepted Answer

All three options listed are disadvantages of the payback statistic. Payback does not account for the time value of money, which means that a dollar received in the future is less valuable than a dollar received today due to inflation and the potential for earning interest. Payback also does not incorporate the project's risk, as it only focuses on the time it takes to recoup the initial investment. Finally, payback ignores any cash flows that occur beyond the payback period, which can lead to an incomplete analysis of the project's overall profitability.

A Disadvantage of the Payback Statistic Is That