Firms That Make Investment Decisions Based Upon the Payback Rule

question 69

Multiple Choice

Firms that make investment decisions based upon the payback rule may be biased toward rejecting projects:

• A)with short lives.
• B)with long lives.
• C)with early cash inflows.
• D)that have negative NPVs.

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Definitions:

Cash Flows

The total amount of money being transferred into and out of a business, often used as an indicator of a company's financial strength.

Discount Rate

The discount rate employed in discounted cash flow analysis to ascertain the present worth of future cash flows.

Annual Salary

The total amount of money that an employee earns in a year from their employer for their services.

Starting Bonus

A preliminary financial incentive given to a new employee as an enticement to join a company.