The Capital Budgeting Decision Technique That Reflects the Time Value

question 104

Multiple Choice

The capital budgeting decision technique that reflects the time value of money and is calculated as the present value of the future after-tax cash inflows divided by the initial cash outlay for the investment is called the:

• A) Net present value (NPV) method.
• B) Capital rationing method.
• C) Average accounting rate of return (ARR) method.
• D) Profitability index (PI) method.
• E) Present value payback method.

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Definitions:

Estimators

Statistics obtained from sample data used to estimate population parameters.

Unbiasedness

A statistical property indicating that an estimator or methodology does not systematically favor certain outcomes over others.

Sample Variance

The measure of variability in a sample dataset, calculated as the sum of squared deviations from the mean, divided by the number of observations minus one.

Population Variance

A measure of how data points in a given population are dispersed from the average value.