CAF-7 · Chapter 13 · Question 3 of 15
Which of the following is a major theoretical weakness of the Payback Period method for investment appraisal?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) It completely ignores the time value of money and any cash flows that occur after the payback point is reached
Explanation
The Payback Period's greatest flaws are that it treats a rupee received in Year 1 the same as a rupee received in Year 4 (ignoring discounting), and it completely ignores how much wealth the project generates after the initial investment is recovered.
More Introduction to Project Appraisal MCQs
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