Home
/
Business
/
2. Which of the following is a capital appraisal method that considers the time value of money and is 'theoretically superior? (i) Accounting time of return (ii) Payback period (iii) Internal rate of return (IRR) (iv) Net present value (NPV)

Question

2. Which of the following is a capital appraisal method that considers the time value of
money and is 'theoretically superior?
(i) Accounting time of return
(ii) Payback period
(iii) Internal rate of return (IRR)
(iv) Net present value (NPV)

2. Which of the following is a capital appraisal method that considers the time value of money and is 'theoretically superior? (i) Accounting time of return (ii) Payback period (iii) Internal rate of return (IRR) (iv) Net present value (NPV)

expert verifiedVerification of experts

Answer

4.3271 Voting
avatar
KellanElite · Tutor for 8 years

Answer

<p> (iii) Internal rate of return (IRR)<br />(iv) Net present value (NPV)</p>

Explain

<p> The question pertains to methods of capital appraisal, which is a part of Business finance and investment management. The term "capital appraisal" refers to the evaluation of a projected investment. This involves investigating the potential returns and determining whether the projected profits and benefits outweigh the costs incurred. <br />The appraisal methods include: <br />(i) Accounting time of return: This measures the profitability of a capital investment. It assesses the project's earnings before interests and taxes against its net book value. <br />(ii) Payback period: This evaluates how long it will take for the initial invest to be repaid from the project's annual net cash revenues. <br />(iii) Internal rate of return (IRR): This annually calculates the exact rate of return at which the net present value of an investment is zero. Here consideration to time value of money is taken.<br />(iv) Net present value (NPV): Through this method one can calculate 'today's value' of a future returns. This takes into account the discounted cash flow's present cost against the present benefit. <br />Here NPV and IRR are 'theoretically superior' method as they both consider the time value of money.</p>
Click to rate:

Hot Questions

More x