An Investment Project Is Most Likely to Be Accepted by the Payback

question 1

Multiple Choice

An investment project is most likely to be accepted by the payback period rule and not accepted by the NPV rule if the project has:

• A) a large initial investment with moderate positive cash flows over a very long period of time.
• B) a very large negative cash flow at the termination of the project.
• C) most of the cash flow at the beginning of the project.
• D) All projects approved by the payback period rule will be accepted by the NPV rule.
• E) The payback period rule and the NPV rule cannot be used to evaluate the same type of projects.

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Definitions:

Work in Process Account

An account that tracks the costs associated with partially completed goods in the manufacturing process.

Raw Materials Account

An account used to track the costs of raw materials that are purchased but not yet used in production.

Finished Goods Inventory

The stock of completed products that are ready to be sold but have not yet been purchased or distributed to customers.

Work in Process

Refers to the goods that are in various stages of production within a manufacturing process but have not yet been completed.