Which of the following statements about comparing capital budget techniques is (are) correct?
I. The payback period is easy to understand and helps the firm identify how long it will be unable to use the initial investment for other projects.
II. Mutually exclusive projects allow a firm to do other like projects (mutually exclusive) simultaneously as long as the budget constraints are met.
A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements I and II are correct.
D) Neither statement I nor II is correct.

Question

Quizplus · Accepted Answer

Statement I is correct because the payback period is a simple measure that tells us how long it will take to recover the initial investment. It helps the firm identify how long it will be unable to use the initial investment for other projects. Statement II is incorrect because mutually exclusive projects compete with each other, so only one can be chosen. It does not allow a firm to do other like projects simultaneously.

Which of the Following Statements About Comparing Capital Budget Techniques