The Payback Period Rule

question 8

Multiple Choice

The payback period rule:

• A) determines a cutoff point so that all projects accepted by the NPV rule will be accepted by the payback period rule.
• B) determines a cutoff point so that depreciation is just equal to positive cash flows in the payback year.
• C) requires an arbitrary choice of a cut-off point.
• D) varies the cut-off point with the interest rate.

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Definitions:

Market Value

The current price at which an asset or company can be bought or sold in the marketplace.

Purchase Price

The amount paid or agreed to be paid by the buyer for goods or services or to acquire an asset.

Economic Performance

An evaluation of how effectively a country, sector, or organization is using its resources to achieve its objectives and generate wealth.

Economic Conditions

The state of the economy at a given time, including factors like inflation, unemployment rates, and GDP growth.