Which of the following decision rules might best be used as a supplement to net present value (NPV) by a firm that favors liquidity?

A) payback period

B) profitability index

C) MIRR

D) equivalent annual annuity

A

Explanation:

An easy way to measure liquidity is with a payback period, which measures what it takes for an investment to pay back its original investment.

The payback period is useful in measuring of investment risk. The project with atheshortest payback period has less risk than with the project with a longer payback period. The payback period is often used particularlyn when liquidity is an important criteria to choose a project.

Payback period method is very useful for projects of small investments. It not worth spending much time and effort on sophisticated economic analysis in such projects