Managers using discounted cash flow methods to make capital budgeting decisions make the same decisions that they would make in using the accrual accounting rate-of-return methods.

Question

Quizplus · Accepted Answer

The discounted cash flow method and the accrual accounting rate-of-return method are different methods that use different measures of profitability, and therefore may lead to different capital budgeting decisions. The discounted cash flow method focuses on the time-value of money and calculates the net present value of future cash flows, while the accrual accounting rate-of-return method uses accounting data to estimate the expected rate of return on investment. The choice between these methods depends on the specific circumstances of the investment and the preferences of the manager.

Managers Using Discounted Cash Flow Methods to Make Capital Budgeting