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

Question

Quizplus · Accepted Answer

Discounted cash flow and accrual accounting rate-of-return methods are different approaches to capital budgeting decision making. While both methods take into consideration the time value of money, they differ in the way they calculate cash inflows and outflows as well as the cost of capital. Therefore, it is unlikely that both methods would lead to the same decisions.

Managers Using Discounted Cash Flow Methods to Make Capital Budgeting