The primary disadvantage of the payback period is that:
A) it incorporates all cash flows that occur after the payback period.
B) it is highly complex.
C) it does not allow the comparisons of alternatives.
D) it disregards the time value of money.

Question

Quizplus · Accepted Answer

The payback period does not consider the time value of money, meaning that it ignores the fact that money today is worth more than the same amount of money in the future. As a result, it can lead to incorrect investment decisions. For example, a project with a shorter payback period might seem more attractive than one with a longer payback period, even though the latter might generate a higher overall return.

The Primary Disadvantage of the Payback Period Is That