Respuesta :
it ignores cash flows beyond the payback period it ignores cash flows beyond the payback period.
The most serious disadvantage of the payback method is that it does no longer recollect the time price of money. cash flows received at some point in the early years of a project get a better weight than cash flows acquired in later years.
Payback vs NPV ignores any benefits that arise after the payback length. It additionally does no longer measure total earnings. An implicit assumption inside the use of payback duration is that returns to the funding retain after payback duration.
The number one drawback to the use of the discounted payback method is that it ignores all cash flows that occur after the cutoff date, hence biasing this criterion closer to short-time period initiatives.
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