Firms that make investment decisions based upon the payback rule may be biased toward rejecting projects:
A)With short lives
B)With long lives
C)With early cash inflows
D)That have negative NPVs

Question

Quizplus · Accepted Answer

The payback rule focuses on how quickly an investment can recoup its initial cost, often ignoring cash flows that occur after the payback period. This can lead to a bias against projects with long lives, as they may have significant cash inflows beyond the payback period that are not considered.

Firms That Make Investment Decisions Based Upon the Payback Rule