Question

The method that is commonly used but is the least valid among the four basic capital...

The method that is commonly used but is the least valid among the four basic capital budgeting criteria is the? A) NPV B) PI C) IRR D) PB

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Ans.

The method that is commonly used but is the least valid among the four basic capital budgeting criteria is the Payback Period.

Though this method is widely used owing to its simplicity but it ignores time value of money which act as a major drawback of this method. Moreover it does not reflect a project's viability in terms of profitability and rate of return.It wholly ignores the cash flows that arises after the payback period.

As a consequence, it is considered to be the least valid method among all.

So the correct option is D.

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
1) If the NPV of a project with one sign reversal is positive, then its IRR:...
1) If the NPV of a project with one sign reversal is positive, then its IRR: Select one: a. must be greater than the required rate of return b. must be less than the required rate of return c. could be greater or less than the required rate of return d. cannot be determined without actual cash flows 2) Which of the following statements is INCORRECT? Select one: a. An acceptable project should have an NPV greater than or equal...
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...
Which of the following statements about capital budgeting decision methods is most correct? NPV is superior...
Which of the following statements about capital budgeting decision methods is most correct? NPV is superior since it is the most conceptually correct method. IRR is superior since it measures the rate of return on a capital investment. PI is superior since it measures the present value benefit per dollar of capital invested. PB is superior since it is quick and easy to use and understand. None of the three methods is considered superior to the others.
Empirical observations show that capital budgeting cash flow analyses or projections are not commonly used in...
Empirical observations show that capital budgeting cash flow analyses or projections are not commonly used in practice especially among small firms, which often prefer to use accounting numbers instead. What is the most likely explanation of this behavior? Do you think this is appropriate? Explain
Compare and contrast the four capital budgeting methods: a. What reinvestment rate assumptions are built into...
Compare and contrast the four capital budgeting methods: a. What reinvestment rate assumptions are built into the NPV, IRR, and MIRR methods? And which assumption is more realistic? Explain. b. What are the strengths and weaknesses of payback method, comparing to the other three methods?
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...
9. Conclusions about capital budgeting The decision process Before making capital budgeting decisions, finance professionals often...
9. 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 that...
When evaluating capital projects, the decisions using the NPV method and the IRR method will agree...
When evaluating capital projects, the decisions using the NPV method and the IRR method will agree if: a) the projects are independent. b) the cash flow pattern is conventional. c) the projects are mutually exclusive. d) both a and b.
The decision process Before making capital budgeting decisions, finance professionals often generate, review, analyze, select, and...
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 that apply. For most firms, the...
In capital budgeting, which of the measures should be larger than one and accept it? NPV...
In capital budgeting, which of the measures should be larger than one and accept it? NPV IRR MIRR PI 2) An investment project has the following cash flows: CF0 = -1,200,000; C01 – C05 = 300,000 each If the required rate of return is 12%, please calculate PI pf the project. a. 0.51   b. 0.88 c. 0.90   d. 0.99   e. 1.05   f. 1.07   g. 1.11  
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT