When Various Capital Budgeting Techniques Rank Mutually Exclusive Projects Differently

question 52

Multiple Choice

When various capital budgeting techniques rank mutually exclusive projects differently, which of the following is theoretically most reliable?

• A) IRR
• B) Equivalent annual cost (EAC).
• C) NPV
• D) Discounted payback

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Definitions:

Input

Resources used in the production process to produce goods or services, such as labor, raw materials, and capital.

Output

The amount of goods or services produced by a company, industry, or economy.

Function

A relation between a set of inputs and a set of permissible outputs, typically defined by a rule that every input is related to exactly one output.

Production Function

A mathematical model that describes the relationship between inputs used in production and the output generated from those inputs.