1. Which of the following describes the payback rule of capital budgeting?

A model that incorporates all the project's future cash flows, no matter how far into the future

A model that is intuitive and relatively easy to utilize

A model that incorporates time value of money into the decision rule

All of the Above

2. Suppose we find that it takes 4 years before the cumulative amount of project cash flows become greater than the initial investment. Suppose also that the rule of the firm is to accept any project that recoups the initial investment within 3 years. What capital budgeting model are we using, and what decision is recommended from that model?

IRR: Reject the project

Payback; Reject the project

NPV: Reject the project

Payback; Accept the project

IRR; Accept the project