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The longer the payback period is, the more desirable is the investment. T or F When...

  1. The longer the payback period is, the more desirable is the investment. T or F
  1. When the net present value method is used, the cost of capital is used as the hurdle rate that a project must clear for acceptance. T or F

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Answer #1

False - Payback period means length of time required for an investment to recover its initial outflow.Longer payback period means an investment will take longer period of time to recover its initial outflow. On contrary, investments with shorter payback period are more desirable.  

False - When Internal rate of return method is used, the cost of capital is used as the hurdle rate that a project must clear for acceptance.Project with IRR lower than Cost of capital is rejected. In net present value method, Cost of capital itself is used as the discount rate to analyze cash flows and the project with negative NPV is rejected.

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