Which of the following statements is FALSE?
A) The payback rule is useful in cases where the cost of making an incorrect decision might not be large enough to justify the time required for calculating the net present value (NPV).
B) The payback rule is reliable because it considers the time value of money and depends on the cost of capital.
C) For most investment opportunities, expenses occur initially and cash is received later.
D) Fifty percent of firms surveyed reported using the payback rule for making decisions.

Question

Quizplus · Accepted Answer

The statement that the payback rule is reliable because it considers the time value of money and depends on the cost of capital is false. The payback rule does not fully consider the time value of money as it only looks at the time taken for the initial investment to be recouped and does not take into account cash flows beyond the payback period. Additionally, the payback rule does not use the cost of capital in its calculations.

Which of the Following Statements Is FALSE