A division manager is considering a project that requires a significant initial investment.The company's top management will not approve any project that does not return at least 12%.The manager will most likely use which of the following capital investment models?

Question

Quizplus · Accepted Answer

The net present value (NPV) model takes into account the time value of money and compares the investment's present value to its initial cost. This model is the most effective for determining whether a project meets the company's required return rate of 12% because it calculates the project's profitability in today's dollars. The payback period and accounting rate of return models do not take into account the time value of money and do not provide an accurate measure of profitability. The internal rate of return model may also be used to evaluate this project, but it does not provide as clear a picture of profitability as the NPV model.

A Division Manager Is Considering a Project That Requires a Significant