The net present value and internal rate of return methods of capital budgeting are superior to the payback method because they:
A)are easier to implement.
B)consider the time value of money.
C)require less data.
D)reflect the effects of depreciation and income taxes.

Question

Quizplus · Accepted Answer

The net present value and internal rate of return methods consider the time value of money, which means that they take into account the fact that money now is worth more than the same amount of money in the future due to inflation and other factors. The payback method does not consider this, making it an inferior method for evaluating capital budgeting decisions. Additionally, the net present value and internal rate of return methods also reflect the effects of depreciation and income taxes, further enhancing their superiority over the payback method.

The Net Present Value and Internal Rate of Return Methods