With the improvement in the technology and understanding of discounting techniques, both NPV and IRR methods of capital budgeting became more popular because _____.

Question

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With the improvement in technology and discounting techniques, the importance of maximizing the value of the investment became increasingly recognized. The NPV and IRR methods provide correct decisions with respect to value maximization, taking into account the time value of money and the cost of capital. Therefore, option C is the best choice. Option A is incorrect because payback period minimization is not necessarily the goal of capital budgeting decisions. Option B is incorrect because the required rate of return is not something to be maximized, but rather a hurdle rate to be met or exceeded. Option D is incorrect because there should ideally only be one IRR for a project, and minimizing the number of IRRs is not necessarily a criterion for making a correct decision. Option E is incorrect because the goal of capital budgeting is to choose the project that will maximize the value of the initial capital investment, not simply to maximize the initial capital investment itself.

With the Improvement in the Technology and Understanding of Discounting