General Studies · Investment Appraisal Techniques
When using the Payback Period method for capital budgeting, what is considered a major drawback when comparing two projects?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1It is mathematically too complex for non-finance managers to understand
- 2It ignores all cash flows that occur after the investment has been fully recovered✓
- 3It assumes a constant discount rate throughout the project life
- 4It ignores the scale of the initial investment outlay
Correct answer
It ignores all cash flows that occur after the investment has been fully recovered
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