The capital budgeting method that recognizes the time value of money by discounting cash flows over the life of the project,using the company's required rate of return as the discount rate is called the:
A)simple rate of return method.
B)the net present value method.
C)the internal rate of return method.
D)the payback method.

Question

Quizplus · Accepted Answer

The description provided is referring to the net present value (NPV) method, which is the capital budgeting method that discounts cash flows using the required rate of return. The simple rate of return method and payback method do not consider the time value of money, and the internal rate of return (IRR) method uses a discount rate that results in an NPV of zero, but does not necessarily reflect the company's required rate of return. Therefore, the best choice is B, the net present value method.

The Capital Budgeting Method That Recognizes the Time Value of Money