Suppose a Firm Relies Exclusively on the Payback Method When

question 59

Multiple Choice

Suppose a firm relies exclusively on the payback method when making capital budgeting decisions,and it sets a 4-year payback regardless of economic conditions.Other things held constant,which of the following statements is most likely to be true?

• A) It will accept too many short-term projects and reject too many long-term projects (as judged by the NPV).
• B) It will accept too many long-term projects and reject too many short-term projects (as judged by the NPV).
• C) The firm will accept too many projects in all economic states because a 4-year payback is too low.
• D) The firm will accept too few projects in all economic states because a 4-year payback is too high.
• E) If the 4-year payback results in accepting just the right set of projects under average economic conditions,then this payback will result in too few long-term projects when the economy is weak.

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Definitions:

Myers-Briggs

A type of personality test based on the theories of Carl Jung, designed to identify individual psychological preferences in how people perceive the world and make decisions.

Judging Type

A personality characteristic that indicates a preference for structure, planning, and orderliness in decision-making and lifestyle.

Task Calendar

A tool or system used for scheduling, tracking, and managing tasks and projects over days, weeks, or months, helping individuals and teams stay organized and meet deadlines.

Selective Perception

The process by which individuals perceive what they want to in media messages while ignoring opposing viewpoints, based on their background, attitudes, and biases.