A disadvantage of using the payback period to compare investment alternatives is that:
A) It cannot be used when cash flows are not uniform.
B) It cannot be used if a company records depreciation.
C) It includes the time value of money.
D) It cannot be used to compare investments with different initial investments.
E) It ignores cash flows beyond the payback period.

Question

Quizplus · Accepted Answer

The payback period method does not consider cash flows that occur after the payback period, which can lead to a misleading assessment of an investment's profitability.

A Disadvantage of Using the Payback Period to Compare Investment