Based on the Payback Rule, Which of the Following Is

question 360

Multiple Choice

Based on the payback rule, which of the following is false?

• A) With a payback cutoff of 1.5 years, both projects are unacceptable.
• B) With a payback cutoff of three years, both projects are acceptable.
• C) With a payback cutoff of one year, neither project is acceptable.
• D) Since both projects pay back, the NPV of both must be positive.
• E) You would be indifferent between the two projects.

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Definitions:

Equivalent Units for Materials

A calculation used in process costing that converts partially completed units into an equivalent number of fully completed units, focusing on the materials aspect.

Weighted-Average Method

An inventory costing method that assigns an average cost to each item in inventory, calculated by dividing the total cost of goods available for sale by the total units available for sale.

Equivalent Units

A concept used in cost accounting to express the amount of work done on units of production in terms of fully completed units.

Conversion Costs

The costs required to convert raw materials into finished products, typically including labor and overhead.