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.

Question

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.

Quizplus · Accepted Answer

The discounted payback decision rule may reject projects with positive net present value because it focuses on recovering the initial investment within a certain period, potentially ignoring the full benefits of long-term cash flows.

Applying the Discounted Payback Decision Rule to All Projects May