Which method for evaluating capital investment proposals deducts the present value of cash outflows from the present value of cash inflows?

Question

Quizplus · Accepted Answer

The method that deducts the present value of cash outflows from the present value of cash inflows is the net present value (NPV) method. This method takes into account the time value of money and provides a more accurate picture of the profitability of a capital investment proposal. Option A, the payback method, only considers the time it takes to recover the initial investment without considering the profitability of the investment. Option B, internal rate of return, uses a similar approach as NPV but only calculates the rate of return, not the actual value of the investment. Option D, the unadjusted rate of return, does not take into account the time value of money and therefore, can provide an inaccurate picture of the profitability of the investment.

Which Method for Evaluating Capital Investment Proposals Deducts the Present