Which of the Following Ranks Decision Rules from Worst to Best

question 227

Multiple Choice

Which of the following ranks decision rules from worst to best in terms of their overall usefulness in capital budgeting analysis.

• A) Payback, IRR, NPV.
• B) Payback, NPV, IRR.
• C) IRR, NPV, Payback.
• D) NPV, IRR, Payback.
• E) IRR, Payback, NPV.

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Definitions:

Indirect Method

An approach used in cash flow statements to adjust net income for non-cash transactions and changes in working capital to calculate operating cash flow.

Operating Activities

Activities that constitute the primary or main activities of a business, including the production, sale, and delivery of its products and services.

Direct Method

A way of preparing the cash flow statement in which actual cash receipts and payments are reported, rather than adjusting net income for changes in non-cash accounts.

Net Cash Flow

The amount of cash generated or lost over a period, taking into account cash inflows from operations, investments, and financing.