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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:

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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Nobuko

7 months ago

Yeah, it really limits comparison between options.

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Truman

8 months ago

I think it’s too simplistic for serious analysis.

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Una

8 months ago

Wait, it ignores the amount invested too? That's surprising!

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Alberto

8 months ago

Totally agree, that's a major flaw!

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Laticia

8 months ago

It doesn't consider the time value of money.

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Kimberely

9 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

9 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

9 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

9 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

9 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

9 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

9 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

9 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

1 year 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

1 year ago

D) It does not compare different options

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Alline

1 year ago

C) It does not consider the time value of money

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Emilio

1 year ago

B) It ignores the amount of money invested

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Moon

1 year ago

A) It is complex

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Geoffrey

1 year 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

1 year 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

1 year 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

1 year ago

C) It does not consider the time value of money

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Glenna

1 year ago

B) It ignores the amount of money invested

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Alayna

1 year ago

A) It is complex

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Lilli

1 year ago

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

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Rolland

1 year 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

1 year ago

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

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