Which of the following statements is correct?
A)The IRR is generally regarded by academics as being the best single method for evaluating capital budgeting projects.
B)The payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects.
C)The discounted payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects.
D)The NPV is generally regarded by academics as being the best single method for evaluating capital budgeting projects.

Question

Quizplus · Accepted Answer

The NPV (Net Present Value) is generally considered the best method for evaluating capital budgeting projects among academics and finance professionals because it takes into account the time value of money, accounts for all expected cash flows, and uses a realistic discount rate. The IRR (Internal Rate of Return) and payback method are also commonly used, but they have limitations and can lead to incorrect decisions, especially when cash flows are uneven or the discount rate is not appropriate. The discounted payback method is an improvement over the regular payback method, but it still ignores the cost of capital and the long-term profitability of the project. Therefore, the NPV should be preferred over the other methods whenever possible.

Which of the Following Statements Is Correct