The Payback Period Rule

question 8

Multiple Choice

The payback period rule:

• A) determines a cutoff point so that all projects accepted by the NPV rule will be accepted by the payback period rule.
• B) determines a cutoff point so that depreciation is just equal to positive cash flows in the payback year.
• C) requires an arbitrary choice of a cut-off point.
• D) varies the cut-off point with the interest rate.

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Definitions:

Ethanol

A renewable fuel made from various plant materials, which can be used as an alternative to gasoline.

Market Price

The current price at which an asset or service can be bought or sold in a marketplace.

Profit

The financial gain realized when the amount earned from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.

Bushels

A measure of volume commonly used in agriculture, especially in the United States, for quantifying crops like grains, fruits, and vegetables.