Fundamentals of Financial Management Concise
Quiz 11: The Basics of Capital Budgeting
The Regular Payback Method Is Deficient in That It Does
The regular payback method is deficient in that it does not take account of cash flows beyond the payback period.The discounted payback method corrects this fault.
Explore answers and all related questions
In theory,capital budgeting decisions should depend solely on forecasted cash flows and the opportunity cost of capital.The decision criterion should not be affected by managers' tastes,choice of accounting method,or the profitability of other independent projects.
If you were evaluating two mutually exclusive projects for a firm with a zero cost of capital,the payback method and NPV method would always lead to the same decision on which project to undertake.
Small businesses make less use of DCF capital budgeting techniques than large businesses.This may reflect a lack of knowledge on the part of small firms' managers,but it may also reflect a rational conclusion that the costs of using DCF analysis outweigh the benefits of these methods for very small firms.
Explore all questions
How it work
Terms And Conditions
© 2020-2021 Cozyplus FZ LLC. All rights reserved