Question

The two capital investment evaluation methods that consider the time value of money concept are: a.the net present value method and the average rate of return method. b.the cash payback method and the net present value method. c.the average rate of return method and the cash payback method. d.the internal rate of return method and the net present value method.

Answer 1

Answer : Option - D, the internal rate of return method and the net present value method

Explanation :

Net present value method : Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. NPV is used in capital budgeting and investment planning to analyze the profitability of a projected investment or project.

NPV = Present value of cash inflows - Initial cash outflows

Internal rate of return method : The internal rate of return (IRR) is a discounting cash flow technique which gives a rate of return earned by a project. The internal rate of return is the discounting rate where the total of initial cash outlay and discounted cash inflows are equal to zero