alleryStart learning →Which key weakness does the simple payback period have?
AIt requires a cost of capital
BIt ignores the time value of money
CIt cannot be expressed in years
DIt needs complex discounting
Answer & Solution
Correct answer: B. It ignores the time value of money
Simple payback adds undiscounted cash flows, so it does not account for the time value of money.
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Related questions
Under which cash flow statement section is capex commonly reported?Which spending is capital expenditure as it extends asset life?Which of these spending items is a capital expenditure?Where do capitalised expenditures show up in the financial statements?Which expense is the counterpart of capital expenditure?What is capital expenditure (capex)?Payback also ignores which part of a project's cash flows?Rs 90,000 is invested and yields Rs 30,000 net cash each year. When is it paid back?