Question:
A disadvantage of using the payback period to compare investment alternatives is that:
a. it ignores cash flows beyond the payback period.
b. it includes the time value of money.
c. it cannot be used when cash flows are not uniform.
d. it cannot be used if a company records depreciation.
e. it cannot be used to compare investments with different initial investments.
Payback Period
The payback period is a technique used in capital budgeting for assessing proposed investments. It calculates the number of years it would take for the initial investment to be paid back, or the time it would take for the cumulative cash inflows from the investment to equal the initial outflow.
Answer and Explanation:1
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Let us look at the alternatives:
| a. it ignores cash flows beyond the payback period. | This is the correct option. |
|---|---|
| b. it includes the time value of... |
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