Of the capital budgeting techniques discussed, which works equally well with normal and non-normal cash flows and with independent and mutually exclusive projects?
A) payback period
B) discounted payback period
C) modified internal rate of return
D) net present value

Question

Quizplus · Accepted Answer

The net present value (NPV) method works equally well with normal and non-normal cash flows and with independent and mutually exclusive projects, making it the preferred choice among the given options. NPV calculates the present value of all cash inflows and outflows over the entire life of the project, discounted at the appropriate cost of capital. If the NPV is positive, the project should be accepted, and if it is negative, the project should be rejected. It considers the time value of money, and is therefore a more reliable method of capital budgeting.

Of the Capital Budgeting Techniques Discussed, Which Works Equally Well