When a capital investment decision is being made between two or more alternatives, the project with the shortest payback period is always the most desirable investment.

Question: When a capital investment decision is being made between two or more alternatives, the project with the shortest payback period is always the most desirable investment.

The notion that the project with the shortest payback period is always the most desirable investment is a common misconception in capital budgeting. While a short payback period can indicate a quick return on investment and is often seen as less risky, it does not necessarily mean it is the best investment. Other factors such as the overall profitability, cash flow patterns, cost of capital, and the project's alignment with the company's strategic goals are also crucial. For instance, a project with a longer payback period may yield higher returns over time or provide strategic advantages that a shorter-term project does not. Therefore, it is essential to conduct a comprehensive analysis that considers all relevant financial metrics and strategic implications before making an investment decision.

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