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. 

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Definitions:

Equipment Account

An account on the balance sheet where the cost of purchasing equipment is recorded and progressively depreciated over time.

Specific Identification

An inventory costing method that tracks the actual cost of each individual item in inventory and assigns this cost to the goods sold.

FIFO Assumption

The First-In, First-Out method is an accounting assumption used to manage inventory and cost of goods sold, assuming the first items placed into inventory are sold first.

Subsidiary Shares

Shares owned by a parent company in a subsidiary, representing a controlling interest in that subsidiary.