A capital budgeting tool that management can use to summarize the difference in the future net cash inflows from an intangible asset at two different points in time is referred to as:
A) the accrual accounting rate-of-return method
B) the net present value method
C) sensitivity analysis
D) the payback method

Question

Quizplus · Accepted Answer

The net present value method is the most appropriate tool for comparing future net cash inflows from an intangible asset at two different points in time because it considers the time value of money and provides a clear picture of the expected profitability of the investment. The accrual accounting rate-of-return method and the payback method do not account for the time value of money and are less reliable indicators of profitability. Sensitivity analysis is a helpful tool for evaluating the impact of changing assumptions and inputs, but it is not specifically designed to compare future cash inflows at two different points in time.

A Capital Budgeting Tool That Management Can Use to Summarize