1. Which one of the following statements is correct?

a. The payback period rule states that you should accept a project if the payback period is less than one year.

b. The payback period considers the timing and amount of all of a project's cash flows.

c. The payback period is computed based on the present value of each of a project's cash flows.

d. The payback period rule is biased in favor of short-term investments.

e. The payback period rule works best when applied to mutually exclusive decisions.

2. You are analyzing a short-term project with conventional cash flows to determine if the project should be accepted. Which method of analysis should you use if you could only use one of the following methods to analyze the project?

a. payback period

b. average accounting rate of return

c. internal rate of return

d. net present value

e. profitability index