The disadvantages of the payback approach include:
A) cash flows after the payback period are ignored in the calculation
B) payback ignores the time value of money
C) payback fails to provide an objective decision-making criterion
D) all of the above

Question

Quizplus · Accepted Answer

A) Cash flows after the payback period are ignored in the calculation, which means the method doesn't take into account the total profitability of the investment.
B) Payback ignores the time value of money, meaning money received earlier is not necessarily as valuable as money received later. 
C) Payback fails to provide an objective decision-making criterion because it only assesses the time taken for returns on investments to accumulate and does not consider other important factors such as long-term profitability, risk, or project complexity. Therefore, all three statements are true, and the best choice is D.

The Disadvantages of the Payback Approach Include