Although NPV Is the Best Capital Budgeting Technique, Most Executives

question 51

Multiple Choice

Although NPV is the best capital budgeting technique, most executives prefer to use:

• A)payback because the calculations are easy.
• B)profitability index because they are familiar with ratios.
• C)IRR because people are more comfortable with rates of return than with the somewhat abstract notion of a present valued dollar.
• D)NPV adjusted for inflation because it overcomes the difficulties they have with the method.

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Definitions:

Project Approval

The process of gaining formal consent to proceed with a project, typically after a review of its feasibility, cost, and benefits.

Terminal Value

The estimated value of a business or project at the end of a specific period, often used in discounted cash flow analysis.

Capital Budgeting Techniques

Methods utilized by businesses to evaluate and prioritize potential expenditures or investments based on their expected returns.

Payback Period

The amount of time it takes for an investment to generate enough cash flow to recover the initial outlay.