ne uecuesS Before making capital budgeting decisions, finance professionals ofte
ID: 2791403 • Letter: N
Question
ne uecuesS Before making capital budgeting decisions, finance professionals often generate, review, analyze, select, and implement long-term investment proposals that meet firm-specific criteria and are consistent with the firm's strategic goals. Companies often use several methods to evaluate the project's cash flows and each of them has its benefits and disadvantages. Based on your understanding of the capital budgeting evaluation methods, which of the following conclusions about capital budgeting are valid? Check all that apply. For most firms, the reinvestment rate assumption in the NPV is more realistic than the assumption in the IRR. Because the MIRR and NPV use the same reinvestment rate assumption, they always lead to the same accept/reject decision for mutually exclusive projects. The discounted payback period improves on the regular payback period by accounting for the time value of money is the single best method to use when making capital budgeting decisions.Explanation / Answer
A&C
1. NPV assumes reinvestment at cost of capital which is more realizitc than the assumption of IRR which assumes reinvestment at IRR
2. MIRR does not use the same reinvestment assumption as NPV..Hence, option B is incorrect
3. Discounted payback accounts for time value of money and hence is superior to regular payback
NPV is the single best method
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.