Answer (B) is correct . The payback method calculates the number of years required to complete the return of the original investment. This measure is computed by dividing the net investment required by the average expected cash flow to be generated, resulting in the number of years required to recover the original investment. Payback is easy to calculate but has two principal problems:? it ignores the time value of money, and it gives no consideration to returns after the payback period. Thus, it ignores total project profitability.
Answer (A) is incorrect because The payback method does not incorporate the time value of money.
Answer (C) is incorrect because The payback method uses the net investment in the numerator of the calculation.
Answer (D) is incorrect because Payback uses the net annual cash inflows in the denominator of the calculation.
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