The major weakness of payback period in evaluating projects is that it cannot specify the appropriate payback period in light of the wealth maximisation goal.

Question

Quizplus · Accepted Answer

Payback period does not take into account the timing and amount of future cash flows, or the opportunity cost of tying up funds in a project over a certain period of time. Therefore, it cannot determine if a project is maximizing shareholder wealth or not.

The Major Weakness of Payback Period in Evaluating Projects Is