Which One of the Following Statements Is Correct

question 22

Multiple Choice

Which one of the following statements is correct?

• A)A longer payback period is preferred over a shorter payback period.
• B)The payback rule states that you should accept a project if the payback period is less than one year.
• C)The payback period ignores the time value of money.
• D)The payback rule is biased in favour of long-term projects.
• E)The payback period considers the timing and amount of all of a project's cash flows.

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Definitions:

Operating Leverage

A measure of how sensitive a company's operating income is to changes in revenue.

Marginal Tax Rate

The rate of tax applied to the next dollar of taxable income, indicating how much tax will be paid on an additional dollar earned.

Operating Cash Flow

A measure of the cash generated by a company's normal business operations.

DOL

Degree of Operating Leverage, a ratio that measures how a company's operating income changes with a change in sales, indicating the effects of fixed costs on profits.