Question

The payback period is useful as a measure of a project's liquidity risk, but it has...

The payback period is useful as a measure of a project's liquidity risk, but it has several weaknesses:

Does not account for the time value of money
No objective criterion for what is an acceptable payback period
Cash flows occurring after the payback period have no impact upon the payback computation.
All of the above
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Answer #1
Payback period is calculated as Initial investment cost divided by Net annual cash inflows.
It is the measure of time by which initial investment cost is recovered.
The weaknesses of payback period are:
Does not account for the time value of money
No objective criterion for what is an acceptable payback period
Cash flows occurring after the payback period have no impact upon the payback computation.
Option D All of the above is correct
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