Which method of project selection gives consideration to the time value of money in a capital budgeting decision?

Question

Quizplus · Accepted Answer

The net present value (NPV) method considers the time value of money by discounting all future cash flows back to their present value. This takes into account the fact that money received in the future is worth less than money received today, due to inflation and the opportunity cost of investing the money elsewhere. The payback method and the accounting rate of return do not consider the time value of money, while the average rate of return uses an average of profits rather than the actual cash flows. Therefore, the NPV method is the most appropriate choice for capital budgeting decisions.

Which Method of Project Selection Gives Consideration to the Time