Question

The payback period rule:

A. determines a cutoff point so that all projects accepted by the NPV rule will be accepted by the payback period rule.

B. determines a cutoff point so that depreciation is just equal to positive cash flows in the payback year.

C. requires an arbitrary choice of a cutoff point.

D. varies the cutoff point with the interest rate.

E. Both determine a cutoff point so that all projects accepted by the NPV rule will be accepted by the payback period rule, and varies the cutoff point with the interest rate.

Answer 1

Explanation:

B. determines a cutoff point so that depreciation is just equal to positive cash flows in the payback year.