Asked by Sofiya Hoyda on May 21, 2024
Verified
Which of the following statements is correct?
A) The IRR is generally regarded by academics as being the best single method for evaluating capital budgeting projects.
B) The payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects.
C) The discounted payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects.
D) The NPV is generally regarded by academics as being the best single method for evaluating capital budgeting projects.
Net Present Value (NPV)
Net Present Value is a method used in capital budgeting to evaluate the profitability of an investment or project, calculating the present value of all cash inflows and outflows using a specified discount rate.
Internal Rate of Return (IRR)
The discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero, used in capital budgeting to estimate the profitability of potential investments.
Payback Method
An investment appraisal technique that calculates the time needed for an investment to generate cash flows sufficient to recover the initial cost.
- Gain insight into why the Net Present Value (NPV) method is considered superior to the Internal Rate of Return (IRR) method in the context of mutually exclusive investments.
Verified Answer
Learning Objectives
- Gain insight into why the Net Present Value (NPV) method is considered superior to the Internal Rate of Return (IRR) method in the context of mutually exclusive investments.
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