Question

Which of the following is NOT a correct statement of a capital budgeting decision rule? Group of answer choices If a project has a payback period that is shorter than the one desired by the company, accept the project. Accept the largest EAA if two projects have unequal lives. If the NPV is positive, accept the project. If the PI is greater than 1, accept the project. If the cost of capital (discount rate) is greater than the IRR, accept the project. Next

Answer 1

Answer:

If a project has a payback period that is shorter than the one desired by the company, accept the project.

Explanation:

Capital budgeting decision rule: The term "capital budgeting decision rule" is determined as a process to invest or finance if the "NPV > 0, if the IRR > r, or if the PI > 1.0". However, there are no specific rules that are being set for the "payback period", "AAR", and "discounted payback period" due to the fact that they do not always "sound measures".

In other words, it is described as a specific firm's decision to finance its ongoing funds, mostly for longer time assets in relation with the "expected flow" of the benefits during a time period or over years.