Question

Which of the following is a disadvantage of the cash payback technique?

A) A quick assessment of liquidity
B) Ignores cash flows beyond payback period
C) Suitable for long-term projects
D) Considers time value of money

Answer 1

The cash payback technique is disadvantageous because it doesn't consider cash flows beyond the payback period.

Step-by-step explanation:

The disadvantage of the cash payback technique is that it ignores cash flows beyond the payback period. This means that it does not consider the long-term profitability of a project. For example, if a project has a payback period of 3 years but generates significant cash flows in the following years, the cash payback technique would not take those future cash flows into account.