The payback period rule
A)varies the cut-off point with the interest rate.
B)determines a cut-off point so that all projects accepted by the NPV rule will be accepted by the payback period rule.
C)requires an arbitrary choice of a cut-off point.
D)varies the cut-off point with the interest rate and requires an arbitrary choice of a cut-off point.

Question

Quizplus · Accepted Answer

The payback period rule requires an arbitrary choice of a cut-off point, which is not based on any objective criteria or analysis. This makes it a less reliable and comprehensive method of investment decision-making compared to the more objective and quantitative NPV rule. Therefore, it is generally not considered a best choice for evaluating investment projects.

The Payback Period Rule