Final answer:
The payback rule does not account for the time value of money or cost of capital, and its use involves calculating the time required to recover the initial investment through savings.
Step-by-step explanation:
The payback rule is a method of evaluating an investment by determining the payback time, which is the time it takes for the investment to generate enough savings to cover the initial capital cost. Contrary to popular assumption, the payback rule does not consider the time value of money, nor does it depend on the cost of capital. Therefore, the correct answer to whether the payback rule considers the time value of money and depends on the cost of capital is b. False.
Calculating the simple payback time involves dividing the investment cost by the annual savings generated, but this simple method ignores changes in the value of money over time and the alternative returns you might earn on that capital.