Asked by Dionne Duncan on Jun 30, 2024
Verified
Methods that ignore present value in capital investment analysis include the net present value method.
Present Value
The current worth of a future sum of money or stream of cash flows, given a specified rate of return; used in financial analysis to assess the value of future income.
Capital Investment
The expenditure of funds by a firm to acquire physical assets, such as property, plant, or equipment, to improve its long-term income and profitability.
Net Present Value Method
A method of analysis of proposed capital investments that subtracts the amount to be invested from the present value of the cash flows expected from the investments.
- Recognize the different methods used in capital investment analysis, including their categorization into present value and non-present value methods.
Verified Answer
SA
salwa albohyJul 01, 2024
Final Answer :
False
Explanation :
The net present value (NPV) method actually takes present value into account, making it a discounted cash flow (DCF) method. Other methods that ignore present value include the payback period method and the accounting rate of return method.
Learning Objectives
- Recognize the different methods used in capital investment analysis, including their categorization into present value and non-present value methods.