Which of the following is a present value method of analyzing capital investment proposals?
a. Average rate of return
b. Cash payback method
c. Accounting rate of return
d. Net present value
Answer Explanation for Question: Which of the following is a present value method of analyzing capital investment proposals?
Investment projects are evaluated by capital budgeting, which considers several factors, including the repayment period (PB), the internal rate of return (IRR), and the net present value (NPV). The present net worth method has the obvious advantage of taking into account the basic concept that a dollar today costs less than a dollar tomorrow.
NPV method has all these features and is hence a good method to evaluate projects. The good properties of this method include; The method uses capital opportunity cost rate as the discount rate to calculate the present value of all income and expenses.