In capital budgeting,the investment proposal with the shortest payback period always has the highest rate of return.

Question

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The investment proposal with the shortest payback period may not necessarily have the highest rate of return. A project with a longer payback period may have a higher rate of return due to larger cash flows in the later years of the project. Therefore, it is important to consider both the payback period and the rate of return when evaluating investment proposals.

In Capital Budgeting,the Investment Proposal with the Shortest Payback Period