Which of the Following Capital Budgeting Methods Uses Accrual Accounting

question 97

Multiple Choice

Which of the following capital budgeting methods uses accrual accounting income?

• A) Payback method
• B) Accounting rate of return method
• C) Net present value method
• D) Internal rate of return method

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Definitions:

Time Value

The portion of an option's price that exceeds its intrinsic value, representing the potential for additional value based on time remaining until expiration.

Out-of-the-money

A term used in options trading to describe an option that would not profit if exercised immediately, i.e., a call option with a strike price above the underlying asset's price or a put option below it.

In-the-money

An option is in-the-money when it has intrinsic value, meaning for a call option, the market price is above the strike price, and for a put option, below the strike price.

Black-Scholes Model

A mathematical model used for pricing European-style options and assessing the options' market value based on factors such as volatility, risk-free rate, and time to expiration.