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What is the payback period's main weakness as an investment criterion?

  1. A It ignores the time value of money and all cash flows after payback
  2. B It is difficult to compute
  3. C It requires a discount rate
  4. D It overstates project risk
Answer

It ignores the time value of money and all cash flows after payback

NPV is theoretically superior, though payback remains useful as a liquidity and risk screen.

All CFA MCQs

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