A capital budgeting technique which takes into consideration the time value of money is the
A) annual rate of return approach.
B) return on stockholders' equity approach.
C) payback approach.
D) net present value method.

Question

Quizplus · Accepted Answer

The net present value method takes into consideration the time value of money by discounting future cash flows back to their present value using a given discount rate. This approach helps to determine whether a project will generate a positive or negative net present value and whether it is worth pursuing. Choice A, the annual rate of return approach, is flawed because it does not account for the time value of money. Choices B and C do not consider discounted cash flows, hence their elimination.

A Capital Budgeting Technique Which Takes into Consideration the Time