Some Firms Use the Payback Period as a Decision Criterion

question 137

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

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Definitions:

Natural Monopolist

A single supplier that can serve the entire market at a lower cost than two or more competing suppliers.

Maximum Price

A price ceiling set by the government to prevent prices from soaring to levels that are too high for most consumers to afford.

Profit-maximizing Level

The output level at which a firm achieves the highest profit, where marginal cost equals marginal revenue.

Pure Monopolist

A single seller in a market that produces a unique product or service without close substitutes, controlling the entire supply.