A significant disadvantage of the payback period is that it
A) is complicated to explain.
B) increases firm risk.
C) does not properly consider the time value of money.
D) provides a measure of liquidity.

Question

Quizplus · Accepted Answer

The payback period does not properly consider the time value of money, which means that it does not take into account the fact that money today is worth more than the same amount of money in the future due to inflation and other factors. This can lead to inaccurate decision-making and may cause the firm to reject profitable investments that have a longer payback period.

A Significant Disadvantage of the Payback Period Is That It