Which of the following statements about comparing capital budget techniques is/are correct?
I. The payback period is easy to understand and helps the firm identify how long it will be unable to use the initial investment for other projects.
II. Mutually exclusive projects allow a firm to do other like projects (mutually exclusive) simultaneously as long as the budget restraints are met.
A) I only
B) II only
C) Both I and II
D) Neither I nor II

Question

Quizplus · Accepted Answer

Statement I is correct. The payback period is a simple method and provides a quick snapshot of how long it will take for a project to recoup the initial investment. This method can help the firm understand its cash flow needs and constraints.

Statement II is incorrect. Mutually exclusive projects are those projects that cannot be undertaken at the same time because they serve the same purpose or use the same resources. Therefore, a firm cannot do other mutually exclusive projects at the same time.

Which of the Following Statements About Comparing Capital Budget Techniques