The Payback Period Rule Is a Convenient and Useful Tool

question 75

Multiple Choice

The payback period rule is a convenient and useful tool because:

• A) it provides a quick estimate of how rapidly the initial investment will be recouped.
• B) results of a short payback rule decision will be quickly seen.
• C) it does not have to take into account time value of money.
• D) All of these.
• E) None of these.

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Definitions:

Shut Down

A short-term decision by a firm to cease production temporarily due to unfavorable market conditions.

MC = MR

This refers to the point where Marginal Cost equals Marginal Revenue, often used as a condition for profit maximization in economic theory.

Economic Profits

The difference between total revenue and total costs, including both explicit and implicit costs, reflecting the total financial gain of a business beyond breaking even.

Perfect Competitors

Entities in a market where no single buyer or seller has the power to influence the market price due to the industry's homogeneous nature and the presence of many participants.