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Statement Response: payback rule, IRR rule, stock prices

1. "You say stock price equals the present value of future dividends? That's crazy! All the investors I know are looking for capital gains."

2.. "I like the IRR rule. I can use it to rank projects without having to specify a discount rate."
3. "I like the payback rule. As long as the minimum payback period is short, the rule makes sure that the company takes no borderline projects. That reduces risk."

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Solution Summary

The solution responds to three statements on capital budgeting.