Final answer:
The payback rule may lead firms to ignore future cash flows that occur after the payback period, potentially bypassing profitable long-term investments.
Step-by-step explanation:
If a firm uses the payback rule as an investment criterion, one of the risks it takes is that it may ignore some future cash flows. The payback rule focuses on how quickly an investment can pay back its initial cost without taking into account any cash flows that occur after the payback period. As a result, potentially profitable investments which may have significant cash flows beyond the payback period could be ignored, leading to a rejection of projects that may have a high net present value (NPV) or internal rate of return (IRR).