Which of the following investment decision rules tends to improperly reject long-lived projects?
A) Net present value
B) Internal rate of return
C) Payback period
D) Profitability index

Question

Quizplus · Accepted Answer

The payback period rule tends to improperly reject long-lived projects because it only considers the length of time required to recover the initial investment, rather than the full stream of cash flows. This can result in longer-term projects being incorrectly rejected in favor of shorter-term projects. The other investment decision rules (net present value, internal rate of return, and profitability index) all take into account the full stream of cash flows and are therefore more appropriate for evaluating long-lived projects.

Which of the Following Investment Decision Rules Tends to Improperly