Which of the following is a disadvantage of payback period approach?
A) It does not examine the size of the initial outlay.
B) It does not use net profits as a measure of return.
C) It does not explicitly consider the time value of money.
D) It does not take into account an unconventional cash flow pattern.

Question

Quizplus · Accepted Answer

The payback period approach does not explicitly consider the time value of money, which means it ignores the fact that money received or paid out in the future is worth less than money in hand today due to inflation or the opportunity cost of investing elsewhere. This is a significant limitation because it can lead to incorrect investment decisions.

Which of the Following Is a Disadvantage of Payback Period