BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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internal rate of return (IRR)
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net past value (NPV)
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profitability index (PI)
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net present value (NPV)
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Detailed explanation-1: -NPV Method is the most optimum method for capital budgeting. Reasons: Consider the cash flow during the entire product tenure and the risks of such cash flow through the cost of capital. It is consistent with maximizing the value to the company, which is not the case in the IRR and profitability index.
Detailed explanation-2: -Answer and Explanation: Answer: C. Discounted cash flow model.
Detailed explanation-3: -Net Present Value is the most important tool in capital budgeting decision making. It projects the financial value of the project for the company. Net Present Value is the discounted value of all cash flows. It is considered to be the best single criterion.
Detailed explanation-4: -NPV can be called the best capital budgeting technique because it is considered superior to other methods such as IRR, the Payback period method, and the accounting rate of return method as it considers all the actual cash flows and discounts them properly.