The computations involved in the net present value method of analyzing capital investment proposals are more involved than those for the average rate of return method.

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period, used in capital budgeting to assess the profitability of an investment.

Average Rate

A figure representing the median value of a variable over a specific period, such as interest rates or currency exchange rates.

Capital Investment

Refers to funds invested in a business or enterprise with the intent of furthering its business objectives, such as acquiring new assets or launching new projects.