Which of the following is a disadvantage of the payback method?
A) It ignores the time value of money.
B) It is inconsistent with the goal of maximizing shareholder wealth.
C) It ignores cash flows beyond the payback period.
D) All of the above.

Question

Quizplus · Accepted Answer

The payback method has several disadvantages, including that it ignores the time value of money, which means it does not account for the fact that a dollar received today is worth more than a dollar received in the future. Additionally, the payback method is often inconsistent with the goal of maximizing shareholder wealth because it focuses on the time it takes to recover the initial investment rather than the overall profitability of the investment. Finally, the payback method ignores cash flows beyond the payback period, which can lead to incomplete analysis of the investment's viability.

Which of the Following Is a Disadvantage of the Payback