Some Firms Use the Payback Period as a Decision Criterion

question 84

Multiple Choice

Some firms use the payback period as a decision criterion or as a supplement to sophisticated decision techniques,because:

• A) it explicitly considers the time value of money.
• B) it can be viewed as a measure of risk exposure.
• C) the determination of payback is an objectively determined criteria.
• D) it can take the place of the net present value approach.

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Definitions:

MR = MC Rule

A principle in economics stating that profit maximization occurs when marginal revenue equals marginal cost.

Short Run

A period in economics where at least one input is fixed and cannot be changed.

Long Run

A period of time in economics during which all factors of production and costs are variable, allowing for full adjustment to changes.

Allocative Efficiency

A condition where resources are distributed according to consumer preferences, optimizing utility for both producers and consumers.