Asked by America Becerra on Jul 04, 2024
Verified
Which capital investment evaluation technique is described by the following characteristics? (1) Easy to understand and communicate; (2) May result in multiple answers; (3) May lead to incorrect decisions when applied to mutually exclusive investments.
A) NPV.
B) IRR.
C) AAR.
D) Payback period.
E) Discounted payback.
NPV
Net Present Value, a method used in capital budgeting to evaluate the profitability of an investment by comparing the present value of its cash inflows to the present value of its cash outflows.
Payback Period
The amount of time it takes for an investment to generate an amount of income or cash equivalent to the cost of the investment.
- Understand the characteristics and limitations of different capital investment evaluation techniques such as NPV, IRR, AAR, and Payback Period.
Verified Answer
JR
Juancho ReynalJul 07, 2024
Final Answer :
B
Explanation :
The Internal Rate of Return (IRR) method is known for being easy to understand and communicate, but it can result in multiple IRRs for projects with non-conventional cash flows and may lead to incorrect decisions when comparing mutually exclusive investments due to its reliance on the project's rate of return rather than the absolute amount of returns.
Learning Objectives
- Understand the characteristics and limitations of different capital investment evaluation techniques such as NPV, IRR, AAR, and Payback Period.
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