PRC-2 · Chapter 6 · Question 22 of 45
Which of the following represents a major theoretical flaw of the basic Payback Period methodology?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) It systematically ignores all cash flows that occur after the targeted payback period has been reached.
Explanation
A major weakness of the payback method is that it completely ignores the profitability of a project post-payback. A project might pay back quickly but generate zero revenue afterward, while a slower project might yield massive long-term returns.
More Discounted Cash Flows MCQs
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