Which of the following decision rules might best be used as a supplement to net present value (NPV) by a firm that favours liquidity?

Question

Quizplus · Accepted Answer

The payback period measures the time required to recoup the initial investment in a project, and is therefore a useful decision rule for a firm that values liquidity. It does not take into account the time value of money, but can be used as a supplement to NPV to ensure that a project can generate sufficient cash flow to fund ongoing operations. The other decision rules listed (equivalent annual annuity, profitability index, and MIRR) are more focused on maximizing the long-term profitability of a project and may not be as useful for a firm that values liquidity.

Which of the Following Decision Rules Might Best Be Used