Which Capital Budgeting Method Is Most Useful for Evaluating a Project

question 113

Multiple Choice

Which capital budgeting method is most useful for evaluating a project that has an initial after-tax cost of $5,000,000 and is expected to provide after-tax operating cash flows of $1,800,000 in year 1, ($2,900,000) in year 2, $2,700,000 in year 3, and $2,300,000 in year 4?

• A) net present value
• B) internal rate of return
• C) payback
• D) accounting rate of return

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Definitions:

Investment in Associates

An investment in another company where the investor has significant influence, typically reflected by ownership of 20% to 50% of voting stock.

Net Loss

A situation where a company's total expenses exceed its total revenues, indicating that the business incurred a loss during a specific period.

Strategic Investments

Investments made with long-term goals in mind, often intended to yield sustainable competitive advantages.