The capital budgeting method that calculates the discount rate at which the present value of expected cash inflows from a project equals the present value of expected cash outflows is the ________.
A) net present value method
B) accrual accounting rate-of-return method
C) payback method
D) internal rate of return method

Question

Quizplus · Accepted Answer

The method described in the question is the internal rate of return method. Choice A is also a correct method for capital budgeting, but it is not the one being described in the question. Choices B and C are not based on the present value of expected cash flows and are therefore not as reliable as the net present value or internal rate of return methods.

The Capital Budgeting Method That Calculates the Discount Rate at Which