Before making capital budgeting decisions, finance professionals often generate,

Question

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 MIRR 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. True or False: Sophisticated firms use only the NPV method in capital budgeting decisions O False True

Explanation / Answer

Which of the following with respect to capital budgeting are valid?

(a) For ost firms, the reinvestment rate assumption in MIRR is more realisitic than the assumption in IRR and

(c) The discounted payback method improves on the regular payback method by accounting for the time value of money

True, sphosticated firms use only the NPV method in capital budgeting (becuase there can be irregular cash flows)

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