The Decision Technique That Measures the Estimated Performance of a Capital

question 57

Multiple Choice

The decision technique that measures the estimated performance of a capital investment by dividing the project's annual after-tax income by the average investment cost is called the:

• A) Break-even point for the project.
• B) Internal rate of return (IRR) on the proposed investment.
• C) Accounting (book) rate of return (ARR) on the investment.
• D) Capital asset pricing rate of return.
• E) Profitability index (PI) for the investment.

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Definitions:

Total Cash Flow

The complete sum of cash flowing in and out of a company, particularly influencing its ability to meet short-term obligations.

Operating Cash Flow

The financial output derived from a company's core business practices.

Capital Spending

Expenditures by a company for physical assets such as property, industrial buildings, or equipment, intended to improve its long-term capacity or efficiency.

Salvage Value

An asset's expected market price at the conclusion of its effective life.