V The payback period rule of capital budgeting A takes time

V The payback period rule of capital budgeting: A. takes time value of money into account in an appropriate manner. B. takes scale into account. C. has additivity property. D. none of the above.

Solution

V. D. none of the above . payback period is the length of time required for an investment to recover its initial outlay in terms of profits or savings. Hence, no time value is taken into account , nor scale and also doesn\'t have additive property.

VI. B. is leless than or equal to the discount factors of n-1 period. Discount factor = 1/(1+r)^n , where obviously, 1+r is greater than 1 and hence, 1/(1+r)^n < 1/(1+r)^n-1

VII. A. a book entry and not a cash flow. Factually , depreciation is only in books, no cash outflow occurs.

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