Which of the following decision rules might best be used as a supplement to net present value (NPV) by a firm that favors liquidity?
A) profitability index
B) MIRR
C) equivalent annual annuity
D) payback period

Question

Quizplus · Accepted Answer

The payback period measures the time required to recoup an investment, and it is often preferred by firms that favor liquidity because it emphasizes the recovery of invested funds, rather than long-term profitability. Thus, it can be a supplement to NPV for these firms. The profitability index, MIRR, and equivalent annual annuity are all measures that take into account both the timing and magnitude of cash flows, but they do not focus specifically on liquidity concerns.

Which of the Following Decision Rules Might Best Be Used