The discounted cash flow methods for capital budgeting are generally considered superior to the payback period and the ARR because they consider the time value of money.

Question

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Discounted cash flow methods, such as net present value and internal rate of return, take into account the time value of money by discounting future cash flows to their present value. This allows for a more accurate assessment of the profitability and value of a long-term investment project, as compared to the payback period and accounting rate of return methods that do not account for the time value of money.

The Discounted Cash Flow Methods for Capital Budgeting Are Generally