The payback period method calculates the time an investment takes to pay back the initial investment, but it overlooks future cash flows in the analysis.
The payback period method focuses on how quickly an investment pays for itself. It calculates the time it takes for the initial investment to be recovered based on the cash inflows generated by the investment. However, one of the flaws of this method is that cash flows after the cutoff date are not considered in the analysis. This means that future cash flows are not given importance in the payback period calculation, which can lead to overlooking the long-term profitability of an investment.
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