Disadvantages of the payback method include the following:

Question

Quizplus · Accepted Answer

All of the given options are disadvantages of the payback method. A primary disadvantage is that it ignores the time value of money by not taking into account the present value of future cash flows. As a result, it can lead to incorrect investment decisions. Additionally, the payback method is inconsistent with the goal of maximising shareholder wealth as it does not consider the potential profitability of a project beyond the payback period. Therefore, the best answer is D.

Disadvantages of the Payback Method Include the Following