A ﬁrm seeks to accept projects with a high degree of liquidity, avoid the higher forecasting error associated with cash ﬂows occurring in the distant future, and avoid projects that require a large
Amount of research and development expenses. This ﬁrm may be justiﬁed in using the
____________ to evaluate its projects.
A) IRR rule.
B) NPV rule.
C) AAR rule.
D) Payback rule.
E) PI rule.

Question

Quizplus · Accepted Answer

The payback rule is a measure that determines how long it will take for a project to recoup its initial investment. This rule is attractive to firms seeking projects with high liquidity since it focuses on the timeframe necessary to recover the investment. Furthermore, avoiding projects with high forecasting errors and substantial research and development expenses aligns with the payback rule's emphasis on shorter-term investments. Hence, the payback rule would be the best method for this firm to evaluate its projects.

A ﬁRm Seeks to Accept Projects with a High Degree