Using the payback method can be appropriate when the time value of money is considered.

Question

Quizplus · Accepted Answer

The payback method does not consider the time value of money, since it only looks at the period of time it takes to recover the initial investment, without taking into account any future cash flows or the cost of capital. As such, it can lead to incorrect investment decisions if used in isolation. Other methods like net present value (NPV) or internal rate of return (IRR) are better suited to incorporate the time value of money and provide a more comprehensive analysis of investment projects.

Using the Payback Method Can Be Appropriate When the Time