Identify two disadvantages of using the payback period for c

Identify two disadvantages of using the payback period for comparing investments. Why is an investment more attractive to management if it has a shorter payback period?

Solution

The disadvantages of using payback period for comparing investments is that firstly it doesnt consider the time value of money for comparing investments. Secondly in the paypack period method, the cash flows coming after the payback period are not considered.

The shorter the paypack period, its always advantage to select that investment as we get back our money in a shorter time, and the rest amount is all the excess income for the investment.