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Answer to Question #6359 in Economics of Enterprise for lamarcus streeter

Question #6359
Which of the following statements is CORRECT?

a. The internal rate of return method (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 net present value method (NPV) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.
e. The modified internal rate of return method (MIRR) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.
Expert's answer
The net present value method (NPV) is generally regarded by academics as being the best single method for evaluating capital budgeting projects is CORRECT
statement. Other methods have some defects, for instance, the internal rate of
return method (IRR) assumes that the cash flows to be received from a project can be reinvested at the IRR itself,
and that assumption is often not valid. The payback method has come under criticism for its inability to consider all the project's flows in a present
valued context.

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