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CIPS L6M5 Exam - 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:

Show Suggested Answer Hide 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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Nobuko
3 months ago
Yeah, it really limits comparison between options.
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Truman
3 months ago
I think it’s too simplistic for serious analysis.
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Una
3 months ago
Wait, it ignores the amount invested too? That's surprising!
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Alberto
4 months ago
Totally agree, that's a major flaw!
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Laticia
4 months ago
It doesn't consider the time value of money.
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Kimberely
4 months ago
I thought it was about not comparing different options effectively, but now I'm leaning towards the time value of money being the bigger problem.
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Willie
4 months ago
I practiced a similar question, and I feel like the complexity of the method was mentioned, but I can't recall if that was the primary disadvantage.
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Glory
4 months ago
I'm not entirely sure, but I remember something about it ignoring cash flows after the payback period. Is that related to option C?
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Zoila
5 months ago
I think the main issue with Payback Analysis is that it doesn't account for the time value of money, right? That seems to be a common critique.
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Lashaun
5 months ago
Wait, I'm a little confused. Is the primary disadvantage that it ignores the amount invested, or that it doesn't compare different options? I need to re-read the question and options more closely to make sure I understand.
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Joye
5 months ago
Okay, let me see. The Payback Analysis method is focused on the time it takes to recoup the initial investment, but it doesn't consider other important factors like the time value of money or the overall profitability of the investment. I think that's the key weakness here.
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Mattie
5 months ago
Hmm, I'm a bit unsure about this one. The options seem to cover different potential drawbacks, but I'm not sure which one is considered the "primary" disadvantage. I'll have to think this through carefully.
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Irving
5 months ago
This seems like a straightforward question about the limitations of the Payback Analysis method. I'm pretty confident I can identify the primary disadvantage.
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Stephen
11 months 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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Alida
9 months ago
D) It does not compare different options
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Alline
9 months ago
C) It does not consider the time value of money
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Emilio
10 months ago
B) It ignores the amount of money invested
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Moon
10 months ago
A) It is complex
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Geoffrey
11 months 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
11 months 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
11 months 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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Melvin
10 months ago
C) It does not consider the time value of money
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Glenna
10 months ago
B) It ignores the amount of money invested
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Alayna
10 months ago
A) It is complex
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Lilli
11 months ago
I think that's a major drawback, especially when comparing projects with different cash flows over time.
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Rolland
11 months 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
12 months ago
C) It does not consider the time value of money.
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