The appropriate capital budgeting decision rule is ________.
A)to accept projects with an NPV greater than $0
B)to reject projects with an IRR greater than the required rate of return
C)to reject projects with an NPV greater than $0
D)to reject projects with an IRR greater than the required payback period

Question

Quizplus · Accepted Answer

The appropriate capital budgeting decision rule is to accept projects with a positive NPV (Net Present Value) greater than $0. This is because projects with positive NPV increase shareholder wealth and provide a return on investment that exceeds the cost of capital. The NPV calculation considers the time value of money, so it is a more accurate method than using the IRR (Internal Rate of Return) or payback period as decision rules. Additionally, projects with an IRR greater than the required rate of return may still have a negative NPV if the cost of capital is high or if cash flows are unevenly distributed over time.

The Appropriate Capital Budgeting Decision Rule Is ________