Use the payback decision rule to evaluate this project; should it be accepted or rejected?
A) .23 years, accept
B) 1.77 years, accept
C) 2 years, accept
D) 4.33 years, reject

Question

Quizplus · Accepted Answer

The payback period decision rule states that a project should be accepted if its payback period is less than or equal to a predetermined cutoff period. The cutoff period is usually set by management and represents the maximum acceptable length of time that it should take to recover the initial investment. The options given are:
A) .23 years, accept
B) 1.77 years, accept
C) 2 years, accept
D) 4.33 years, reject
Since only option B has a payback period that is less than the cutoff period, it is the best choice. The project should be accepted. Option A is also less than the cutoff period but may not be practical as it has a very short payback period. Option C is equal to the cutoff period and may be acceptable but does not provide sufficient buffer time. Option D has a payback period greater than the cutoff period and should be rejected.

Use the Payback Decision Rule to Evaluate This Project; Should