The Capital Budgeting Decision Model That Utilizes All the Discounted

question 94

Multiple Choice

The capital budgeting decision model that utilizes all the discounted cash flow of a project is the ________ model,which is one of the single most important models in finance.

• A)net present value (NPV)
• B)internal rate of return (IRR)
• C)profitability index (PI)
• D)discounted payback period

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Definitions:

Average Rate of Return

A financial ratio that indicates the profitability of an investment by calculating the average annual profits divided by the initial investment cost.

Present Value Factor

A factor used to determine the present value of a sum that is to be received in the future, taking into account a specific interest rate and time period.

Cash Payback Period

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

Present Value Factor

A factor used in calculating the present value of a future cash flow, discounting its value to reflect time and risk.