Which methods of evaluating a capital investment project use cash flows as a measurement basis quizlet?

Which of the following methods of evaluating capital investment projects?

The most commonly used methods for capital budgeting are the payback period, the net present value and an evaluation of the internal rate of return.

Which one of the following methods of evaluating investment projects is most likely to be least acceptable for making project ranking decisions?

The payback period method is least likely to be used for ranking projects because of its serious shortcomings, including its failure to use discounted amounts and the fact that it is only concerned with the period required to recover the initial investment, not with the entire life of a project.

When analyzing capital investments the payback method is used to?

The payback period is calculated by dividing the amount of the investment by the annual cash flow. Account and fund managers use the payback period to determine whether to go through with an investment. One of the downsides of the payback period is that it disregards the time value of money.

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Which of the following would not be considered a capital asset?

Any stock in trade, consumable stores, or raw materials held for the purpose of business or profession have been excluded from the definition of capital assets. Any movable property (excluding jewellery made out of gold, silver, precious stones, and drawing, paintings, sculptures, archeological collections, etc.)

What are the methods used to evaluate capital expenditures?

The findings show that six capital budgeting techniques, namely, the net present value (NPV), the internal rate of return (IRR), the payback period (PBP), the accounting rate of return (ARR), the return on investment (ROI) and the real option valuation (ROV), are the most popular methods for evaluating capital …

Which is the best capital budgeting techniques?

Each year’s cash flow can be discounted separately from the others making NPV the better method. The NPV can be used to determine whether an investment such as a project, merger or acquisition will add value to a company.

What is the difference between NPV and IRR?

What Are NPV and IRR? Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. By contrast, the internal rate of return (IRR) is a calculation used to estimate the profitability of potential investments.

What are the four capital budgeting decision criteria?

namely: 1) discounted payback period, 2) net present value, 3) modified rate of return, 4) profitability index, and 5) internal rate of return.

What are the six steps in the capital budgeting process?

The process of Capital Budgeting may be divided into six broad phases/steps, viz., planning or idea generation, evaluation or analysis, selection, financing, execution or implementation and review.

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What are the 7 capital budgeting techniques?

There are several capital budgeting analysis methods that can be used to determine the economic feasibility of a capital investment. They include the Payback Period, Discounted Payment Period, Net Present Value, Profitability Index, Internal Rate of Return, and Modified Internal Rate of Return.

What is capital budgeting and its techniques?

Capital budgeting techniques are the methods to evaluate an investment proposal in order to help the company decide upon the desirability of such a proposal. These techniques are categorized into two heads : traditional methods and discounted cash flow methods.

Which of the following is an example of floating capital?

A floating capital is the capital which can be used in alternative lines of production. It is also called free capital. For example, steel, wood, raw materials etc.

Is gold a capital asset?

Gold can be held in physical form as jewellery, coins and bars, among others. The precious metal is a capital asset, so you need to pay tax on any capital gains you earn. … For gold held for more than three years, the long-term capital gains (LTCG) will be taxed at 20% after indexation.