Asked by Heath Gillette on Jul 05, 2024
Verified
A measure of the average income as a percent of the average investment
A) Capital rationing
B) Annuity
C) Capital investment analysis
D) Internal rate of return method
E) Payback period
F) Accounting rate of return
Capital Rationing
A strategy or decision-making process that involves allocating and limiting investment funds to various projects to maximize a company's value.
Annuity
A financial product that pays out a fixed stream of payments to an individual, primarily used as an income stream for retirees.
Internal Rate of Return Method
A financial analysis tool used to evaluate the profitability of investments. It is the rate of return at which the net present value of all cash flows (positive and negative) from a project or investment equals zero.
- Grasp the principles of capital rationing and its application in prioritizing investment projects.
Verified Answer
Answer: D
The internal rate of return method is a measure of investment profitability which calculates the discount rate at which the present value of the expected cash flows from the investment equals the initial investment.
Answer: E
The payback period is the amount of time it takes for an investment to generate enough cash flows to recover the initial investment.
The other choices are not correct definitions of the terms.
Capital rationing refers to the limit placed on the amount of capital available for investment.
An annuity is a series of equal payments or receipts over a specified period of time.
Capital investment analysis is the process of evaluating potential investment opportunities.
Learning Objectives
- Grasp the principles of capital rationing and its application in prioritizing investment projects.
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