Use the Information for the Question(s) Below

question 48

Multiple Choice

Use the information for the question(s) below.

-If WiseGuy Inc. uses payback period rule to choose projects, which of the projects (Project A or Project B) will WiseGuy Inc. prefer?

• A) Project A
• B) Project B
• C) Project A and Project B have the same ranking.
• D) Cannot calculate a payback period without a discount rate.

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Definitions:

Payback Method

A capital budgeting technique that calculates the time needed to recoup the investment cost through net cash flows.

Cost of Capital

The minimum profit rate a company needs to achieve on its investment ventures to keep its market value stable and draw in capital.

Cash Inflows

Money received by a business from various sources including sales, investments, and financing.

Useful Life

The estimated period over which an asset is expected to be used by the entity, or be productive.