To produce espressos, a coffee shop has fixed costs of 200 dollars each day and variable costs of one dollar per espresso. The n
umber of espressos that the coffee shop sells on a given day depends linearly on the price of each espresso: If the price is $1.00, then they sell 200 espressos, and if the price is $2.00, then they sell 100 espressos. What is the choice of price that will maximize their profit?
Answer: Payback period does not consider all the project's cashflow because payback period does not take cognisance of cashflows arising after obtaining the payback period.
Explanation: Payback period is a traditional techniques of investment appraisal. It does not consider time value of money. It does not take cognisance of any required rate of return and the firm cutoffs are subjective. All these factors are the limitations of payback period.
Payback period does not also consider all the project's cashflow. The last point mentioned in the question (consider all of the project's cashflows) is not a limitation of payback period