Firms That Make Investment Decisions Based Upon the Payback Rule

question 6

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:

Effect Size

A statistical measure that indicates the strength of the difference or relationship between two variables in a numerical scale.

External Financing

Funds that a company secures from outside sources, such as loans, lines of credit, or the sale of equity, to support its operations and growth.

Financing Need

Refers to the amount of funding required by an entity to carry out its operations, investments, or to cover its expenses.

Equity

The ownership interest in a company, represented by the shares held by investors.