Question

The discounted payback rule may cause: Both some positive net present value projects to be rejected;...

The discounted payback rule may cause:

Both some positive net present value projects to be rejected; and some projects with negative net present values to be accepted.

projects to be incorrectly accepted due to ignoring the time value of money.

some positive net present value projects to be rejected. some projects with negative net present values to be accepted.

the most liquid projects to be rejected in favor of less liquid projects.

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Answer #1

Dear student.

Answer is some positive net present value projects to be rejected. some projects with negative net present values to be accepted

Projects with positive NPV would be rejected if they do not meet the discounted payback criteria e.g. If a project has positive NPV but discounted payback period of 5 years then it may be rejected it the company wants discounted pBP of 3 years

Similarly if project has negative NPV i.e. negative cash flow occur after the discounted PBP

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