Question

With respect to the capital budgeting practices of large U. S. corporations: Answer A the profitability...

With respect to the capital budgeting practices of large U. S. corporations: Answer A the profitability index has been gaining in popularity. B IRR and NPV have been gaining in popularity. C. payback and discounted payback have been gaining in popularity. D. IRR and NPV have declined in popularity
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Answer - B) IRR and NPV have been gaining in popularity.

The project's IRR is the actual rate of return earned by the investment. It is the rate where the projects NPV equals 0.

NPV is the net present value of the project given the company's required rate of return. Thus projects with positive NPV are selected as they earn more than the return required by the company.

These 2 measures are utmost important in capital budgeting decisions and are gaining in poularity for large US corporations.

Profitability index is used by companies facing limited capital and where projects are mutually exclusive. Its used in capital rationing decisions.

Payback and discounted payback period may be used by small companies for their decisions. These measures have limitations and must not be used for making big decisions.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
which of the following capital budgeting rules does not use the time value of money concept?...
which of the following capital budgeting rules does not use the time value of money concept? a) NPV b) IRR c) the discounted payback period d) the profitability index E) the payback period Please explain why Thank you
Which of the following statements is INCORRECT regarding capital budgeting tools? If the NPV is positive,...
Which of the following statements is INCORRECT regarding capital budgeting tools? If the NPV is positive, the Profitability Index must be greater than 1. If the IRR is greater than the required return, then the NPV will be positive. The discounted payback period will always be smaller than the payback period. The NPV is the best capital budgeting tool, as a general rule.
1. Under conditions of capital rationing (i.e., limited capital funds are available), the optimal allocation of...
1. Under conditions of capital rationing (i.e., limited capital funds are available), the optimal allocation of funds to capital investment projects occurs when management uses which one of the following decision models? a. Internal Rate of Return (IRR) b. Discounted accounting rate of return c. Profitability Index (PI) d. Discounted Payback (WRONG ANSWER) e. Modified Internal Rate of Return (MIRR). 2. The payback period for evaluating capital investment projects emphasizes: a. Average net income divided by average investment b. Average...
Consider the capital budgeting decision to be made with the following data about 2 competing projects....
Consider the capital budgeting decision to be made with the following data about 2 competing projects. Project A has an NPV of $12 500, and IRR of 10% and a payback period of 3 years. Project B has an NPV of $12 000, but an IRR of 13% and a payback period of 2 years 10 months. Which project(s) would be chosen on an independent basis? Select one: a. Project A and Project B b. Neither Project A nor Project...
Consider the capital budgeting decision to be made with the following data about 2 competing projects....
Consider the capital budgeting decision to be made with the following data about 2 competing projects. Project A has an NPV of $12 500, and IRR of 10% and a payback period of 3 years. Project B has an NPV of $12 000, but an IRR of 13% and a payback period of 2 years 10 months. Which project(s) would be chosen on an independent basis? Select one: a. Project B b. Neither Project A nor Project B c. Project...
You are a financial analyst for Hittle Company. The director of capital budgeting has asked you...
You are a financial analyst for Hittle Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each project is 10 percent. The payback cutoff period is 3 years. The projects’ expected net cash flows are as follows: Expected Net Cash Flows Year Project X 0 ($10,000) 1 6,500 2 3,000 3 3,000 4 1,000 Project Y ($10,000)...
A.TRUE FASLSE 1) 1. Capital Budgeting do not involve the allocation of funds to project that...
A.TRUE FASLSE 1) 1. Capital Budgeting do not involve the allocation of funds to project that have longer life duration. YES OR NO 2)Long time period decision of capital budgeting is good or bad ? 3)DPB is the Discounting technique of Capital Budgeting YES OR NO 4)If a project has outlay of Rs. 40000 and yields annual cash inflow of Rs. 8000 for next 10 years. What is the Discounted Payback period of the project if rate of interest is...
7. Which of the following is correct with respect to working capital and capital budgeting? a....
7. Which of the following is correct with respect to working capital and capital budgeting? a. Investment in working capital is ignored in the capital budgeting process b. Working capital usually has a different discount rate c. Investment in working capital is assumed to be recovered at the end of the life of the project d. All of the above are correct
The profitability index (PI) is a capital budgeting tool that is defined as the present value...
The profitability index (PI) is a capital budgeting tool that is defined as the present value of a project’s cash inflows divided by the absolute value of its initial cash outflow. Consider this case: Free Spirit Industries Inc. is considering investing $2,500,000 in a project that is expected to generate the following net cash flows: Year Cash Flow Year 1 $325,000 Year 2 $425,000 Year 3 $450,000 Year 4 $425,000 Free Spirit Industries Inc. uses a WACC of 7% when...
12. Conclusions about capital budgeting The decision process Before making capital budgeting decisions, finance professionals often...
12. Conclusions about capital budgeting The decision process 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...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT