PRC-2 · Chapter 6 · Question 10 of 45
Which of the following is widely considered the most significant limitation of the basic Payback Period appraisal method?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) It completely ignores the time value of money.
Explanation
The basic payback method treats a Rupee received in Year 5 as having the exact same value as a Rupee received in Year 1, critically ignoring the fundamental concept of the time value of money.
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