The capital budgeting technique that finds the interest yield of the potential investment is the
A) annual rate of return method.
B) internal rate of return method.
C) net present value method.
D) profitability index method.

Question

Quizplus · Accepted Answer

The internal rate of return method calculates the interest rate that makes the present value of cash inflows equal to the present value of cash outflows. It is a widely used capital budgeting technique to evaluate the potential profitability of an investment and is considered one of the best methods for choosing between multiple investment options. The annual rate of return method calculates the average annual return, while the net present value and profitability index methods both focus on the present value of cash inflows and outflows.

The Capital Budgeting Technique That Finds the Interest Yield of the Potential