Which Statement Is False with Respect to the Decision Rule

question 33

Multiple Choice

Which statement is false with respect to the decision rule: accept a project if and only if [Return at Time 2 / (1 + i) - Δ] > 0?

• A)The decision rule is completely consistent with Fisher's separation theorem.
• B)The decision rule is the same as the net present value rule.
• C)A company that always applies the decision rule to its investment decisions will be able to locate the optimal investment/dividend policy and will maximise the wealth of its shareholders.
• D)None of the given options.

---

Definitions:

Payback Period

The amount of time it takes for an investment to generate enough cash flow to recover its initial cost.

Accounting Rate of Return

A method used to determine the profitability of an investment, calculated by dividing the average annual accounting profit by the initial investment cost.

Straight-Line Depreciation

A methodology for dispensing the cost of a durable asset over its useful period in uniform annual allocations.

Accounting Rate of Return

A financial metric used to measure the profitability of an investment, calculated by dividing the average annual profit by the initial investment cost.