The capital budgeting decision technique that reflects the time value of money and is calculated as the present value of the future after-tax cash inflows divided by the initial cash outlay for the investment is called the:
A) Net present value (NPV) method.
B) Capital rationing method.
C) Average accounting rate of return (ARR) method.
D) Profitability index (PI) method.
E) Present value payback method.

Question

Quizplus · Accepted Answer

The Profitability Index (PI) method calculates the ratio of the present value of future after-tax cash inflows to the initial cash outlay of the investment, reflecting the time value of money and allowing for comparison of the relative profitability of investments.

The Capital Budgeting Decision Technique That Reflects the Time Value