Firms can make best capital budgeting decision by first computing the free cash flow associated with each alternative and then choosing the alternative with the highest ________.

Question

Quizplus · Accepted Answer

Net present value (NPV) is the most appropriate measure for comparing capital budgeting alternatives because it takes into consideration both the timing and magnitude of each alternative's expected cash flows. NPV measures the present value of all expected cash inflows minus the present value of all expected cash outflows. The higher the NPV, the more value the alternative creates for shareholders.

Firms Can Make Best Capital Budgeting Decision by First Computing