Question $9$

$4$ pts

In class we discussed the payback period method and how it should be used as an initial screen or a supplemental method due to its weaknesses. What is the most likely case if a company ignored payback's weaknesses and used it as the company's primary capital budgeting method setting a $3-$year payback.

The company will accept excessive numbers of long$-$term projects and reject too many short$-$term projects $($if NPV had been used$).$

The $3-$year payback is too low and would cause the company to accept too many projects.

Using an assumption that the $3-$year payback cutoff results in the company accepting the perfect number of projects under normal conditions, then the company will accept to few long$-$term projects when the company is weakened.

The $3-$year payback is too high and would cause the company to reject too many projects.

The company will accept excessive numbers of short$-$term projects and reject too many long$-$term projects $($if NPV had been used$).$