The discounted payback rule may cause:
A)some positive net present value projects to be rejected.
B)the most liquid projects to be rejected in favor of less liquid projects.
C)projects to be incorrectly accepted due to ignoring the time value of money.
D)some projects with negative net present values to be accepted.
E)Both A and D.

Question

Quizplus · Accepted Answer

The discounted payback rule ignores the time value of money, which can cause some positive net present value projects to be rejected and some projects with negative net present values to be accepted. Therefore, both options A and D are true, making E the correct choice. The discounted payback rule also does not prioritize liquidity, making option B incorrect. The rule is not inherently flawed, but it can lead to incorrect decisions if used as the sole criterion for project acceptance.

The Discounted Payback Rule May Cause