Discussion
The chief shortcoming of the simple payback period is that it
Answer: A
Correct answer: ignores all cash flows after payback is reached
Two projects paying back in three years rank equally under the criterion even if one then stops and the other runs profitably for twenty more. Since everything of value in a long-lived project happens after payback, the measure is blind to precisely what matters most. It also ignores the time value of money, which the discounted form corrects.
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