ECONOMICS

COST ACCOUNTING

CAPITAL BUDGETING

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

Capital budgeting methods are often divided into two classifications:project screening and project ranking. Which one of the following is considered a ranking method rather than a screening method?

A	Accounting rate of return
B	Net present value
C	Profitability index
D	Time-adjusted rate of return

Explanation:

Detailed explanation-1: -Capital budgeting involves identifying the cash in ows and cash out ows rather than accounting revenues and expenses owing from the investment. For example, non-expense items like debt principal payments are included in capital budgeting because they are cash ow transactions.

Detailed explanation-2: -The best capital budgeting method for ranking investment projects of different dollar amounts is the: project profitability index.

Detailed explanation-3: -A simple method of comparing alternative projects that takes into account both the size of the original investment and the discounted cash flows is the profitability index.

Detailed explanation-4: -Which of the following are categories (classifications) of capital budgeting projects? Capital budgeting projects in include replacement (maintenance of business or cost reduction), expansion (existing or new products), safety and/or environmental projects, and others.

There is 1 question to complete.