For what reason are the net present value and internal rate of return methods of capital budgeting superior to the payback method?
A) Both the methods are easier to implement.
B) Both the methods consider the time value of money.
C) Both the methods require less input.
D) Both the methods reflect the effects of depreciation and income taxes.

Question

Quizplus · Accepted Answer

The net present value (NPV) and internal rate of return (IRR) methods are superior to the payback method because they consider the time value of money. Time value of money refers to the concept that money today is worth more than the same amount of money in the future due to factors such as inflation and opportunity cost. NPV and IRR take into account this factor, which the payback method does not. This means that NPV and IRR provide a more accurate assessment of the profitability and potential value of long-term investments, making them more reliable methods of capital budgeting.

For What Reason Are the Net Present Value and Internal