Managers have several different methods from which to choose when evaluating long-term investments.

The Payback Period method calculates how long it will take to recover the original investment but does not consider the time value of money (i.e., it treats all cash inflows as equally valuable regardless of when they are received).

According to Saylor Academy BUS105:

“The payback method ignores the time value of money and therefore is not as reliable as methods such as NPV or IRR.”