Final answer:
The advantages of the payback method are its liquidity bias and ease of use, making option C (II and III only) the correct answer.
Step-by-step explanation:
The payback method of project analysis is a financial evaluation tool used to determine the duration it takes for a project to "pay back" its initial investment through cash inflows. The question asks about the advantages of the payback method. The correct answer is that the advantages of the payback method are its liquidity bias and ease of use. The payback method does not work well for research and development projects because it ignores the time value of money and cash flows after the payback period. Moreover, having an arbitrary cutoff point is not necessarily an advantage, as it can exclude potentially profitable projects that have longer payback periods.
Therefore, the answer to the question is C. II and III only, which includes the liquidity bias and ease of use advantages of the payback method.