Some Firms Use the Payback Period as a Decision Criterion

question 166

Multiple Choice

Some firms use the payback period as a decision criterion or as a supplement to sophisticated decision techniques, because ________.

• A) it explicitly considers the time value of money
• B) it can be viewed as a measure of risk exposure due to its focus on liquidity
• C) the determination of the required payback period is an objectively determined criteria
• D) it considers the timing of cash flows and therefore the time value of money

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Definitions:

Standard Normal Distribution

A probability distribution that has a mean of zero and a standard deviation of one, commonly used in statistics.

Less Than

A comparative term used to indicate that one quantity or number is smaller than another.

Z-scores

A numerical indicator showing how a specific value compares to the average of a set of numbers, expressed by how many standard deviations it is from the average.

Standard Normal Distribution

A normal distribution with a mean of 0 and a standard deviation of 1, used as a basis for comparison in statistical analysis.