CIPS Exam L6M5 Topic 3 Question 7 Discussion

Actual exam question for CIPS's L6M5 exam

Question #: 7
Topic #: 3

[All L6M5 Questions]

What is the primary disadvantage of the Payback Analysis method?

Answer Options:

AIt is complex

BIt ignores the amount of money invested

CIt does not consider the time value of money

DIt does not compare different options

Show Suggested Answer

Suggested Answer: C

The Payback Method ignores the time value of money (TVM) (p.1.4).

Option A is incorrect---Payback is simple.

Option B is incorrect---it accounts for investment amounts.

Option D is incorrect---Payback can compare options, but lacks long-term financial accuracy. [P.1.4]

by Keneth at Mar 07, 2025, 07:30 PM

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Stephen

1 days ago

C) It does not consider the time value of money. This is the most important disadvantage as it completely skews the analysis.

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Geoffrey

2 days ago

It's like trying to plan a road trip without a map - the Payback Analysis method is missing some crucial information.

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Dahlia

3 days ago

Ignoring the time value of money? That's like trying to buy a Ferrari with a handful of pocket change. It just doesn't add up!

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Truman

7 days ago

The Payback Analysis method is like trying to catch a slippery fish with your bare hands - it just doesn't consider the bigger picture!

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Lilli

8 days ago

I think that's a major drawback, especially when comparing projects with different cash flows over time.

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Rolland

11 days ago

That's true, the Payback Analysis method only focuses on how long it takes to recoup the initial investment.

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Johnathon

27 days ago

C) It does not consider the time value of money.

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