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

Question

Quizplus · Accepted Answer

The payback period only looks at the length of time it takes for an investment to recover its initial cost, without considering factors like the time value of money or the profitability of the investment after the payback period. Therefore, it cannot effectively determine if a project is truly worth pursuing from a wealth maximization perspective.

The Major Weakness of the Payback Period in Evaluating Projects