FPAC Part I Practice Questions - FPAC Exam Part I - Financial Acumen Exam

What is the primary limitation of the payback period as a capital budgeting metric?

It ignores cash flows after the payback point and the time value of money It cannot be computed without using WACC It always gives the same decision as NPV It overstates the value of long-lived projects

Correct Answer:

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

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