alleryStart learning →A third drawback of the payback period method is that it ignores cash flows arriving:
ABeside the second ledger
BAfter the payback period
CBefore the first invoice
DWithin the opening month
Answer & Solution
Correct answer: B. After the payback period
1. The method stops counting the moment the cost is recovered.
2. Anything that happens later has no effect on the answer.
3. A third drawback is that cash flows after the payback period are ignored.
4. A very profitable long tail is therefore invisible to the method.
_Source: OpenStax Principles of Finance (CC BY 4.0), Ch 16 'How Companies Think about Investing', sections 16.1-16.5_
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