Final answer:
The payback method of capital budgeting neglects the time value of money by focusing on how quickly an investment can pay back the initial costs without considering future cash flow values.
Step-by-step explanation:
The statement is true: the payback method of making capital budgeting decisions does not give full consideration to the time value of money. The payback method focuses solely on the amount of time it takes for the initial investment to be returned through incoming cash flows. It does not account for the diminishing value of future cash flows as a result of inflation and the opportunity cost of capital. The budget constraint framework is relevant to this discussion as it emphasizes that decisions should not be influenced by sunk costs, which are irrecoverable past expenses. However, the payback method may lead to short-term thinking and neglect the long-term profitability and overall financial health which are affected by the time value of money.