Applying the Discounted Payback Decision Rule to All Projects May

question 23

Multiple Choice

Applying the discounted payback decision rule to all projects may cause: 

• A) some positive net present value projects to be rejected. 
• B) the most liquid projects to be rejected in favor of the less liquid projects. 
• C) projects to be incorrectly accepted due to ignoring the time value of money. 
• D) a firm to become more long-term focused. 
• E) some projects to be accepted which would otherwise be rejected under the payback rule. 

---

Definitions:

Law of Effect

A principle in psychology which states that actions which produce rewards are likely to be repeated, while actions that produce discomfort are less likely to be repeated.

Serial Position Effect

A phenomenon in memory that suggests people tend to recall the first and last items in a series best, and the middle items worst.

Primacy Effect

The tendency to remember information at the beginning of a list better than information in the middle or end.

Recency Effect

The tendency to better remember information that is encountered last in a series.