PE Computer Engineering Practice Questions - PE Electrical And Computer Computer Engineering Exam

Question 5

A company evaluating a server-room upgrade computes payback period and benefit-cost ratio. Which statement BEST describes a key limitation of using simple payback period as the sole investment criterion?

It cannot be applied to projects with non-uniform cash flows It ignores the time value of money and cash flows beyond payback It always disagrees with NPV decisions It requires knowing the internal rate of return first

Correct Answer:

It ignores the time value of money and cash flows beyond payback

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