Question

Firms that make investment decisions based on the payback rule may be biased toward rejecting projects:__________

a. with short lives.
b. with long lives.
c. with late cash inflows.
d. that have negative NPVs.

Answer 1

c. with late cash inflows.

Step-by-step explanation:

The Payback method focus on the time it takes for the Cash Inflows of the Project to equal the Initial investment made into the project. This means that projects which takes a short period (early cash flows) are preferred over those that take a long period (late cash flows) for the cash flows to equal the initial cost.