COST ACCOUNTING
CAPITAL BUDGETING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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You must know all the cash flows of an investment project to compute its
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NPV, IRR, PI and discount payback period
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NPV, IRR, PI, payback period and discount payback period
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NPV, IRR, PI
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NPV, accounting rate of return, IRR, PI
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Explanation:
Detailed explanation-1: -Whereas ROI and NPV only take into account the cash flows of a project, IRR takes into account the timing of those cash flows.
Detailed explanation-2: -To calculate the payback period you can use the mathematical formula: Payback Period = Initial investment / Cash flow per year For example, you have invested Rs 1, 00, 000 with an annual payback of Rs 20, 000. Payback Period = 1, 00, 000/20, 000 = 5 years.
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