A significant advantage of the payback period is that it
A) places emphasis on time value of money.
B) allows for the proper ranking of projects.
C) tends to reduce firm risk because it favors projects that generate early, less uncertain returns.
D) gives proper weighting to all cash flows.

Question

Quizplus · Accepted Answer

The payback period favors projects that generate early and less uncertain returns, thus reducing firm risk. However, it does not take into account the time value of money or give proper weighting to all cash flows. It also does not provide a proper ranking of projects.

A Significant Advantage of the Payback Period Is That It