The ________ capital budgeting model considers both profitability and the time value of money.

Question

Quizplus · Accepted Answer

The net present value (NPV) model considers both profitability through the calculation of the discounted cash flows, and the time value of money through the use of a discount rate. The payback model only considers the time it takes to recover the initial investment, while the accounting rate of return model only looks at the average annual profit as a percentage of the initial investment. Choice A is incorrect because the payback model only considers time, while choice D is incorrect because only the accounting rate of return model considers profitability without taking into account the time value of money.

The ________ Capital Budgeting Model Considers Both Profitability and the Time