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Which of the following statements concerning capital budgeting methods is/are correct? Group of answer choices a....

Which of the following statements concerning capital budgeting methods is/are correct?

Group of answer choices

a. The IRR and NPV methods may provide conflicting recommendations when choosing independent projects.

b. The discounted payback period method discounts accounting earnings at the cost of capital for risky projects.

c. The IRR and NPV methods may provide conflicting recommendations when choosing among mutually exclusive projects.

d. The pure payback method is the best method for evaluating large scale investment projects because it measures how fast the firm can recover the initial investment.

e. Both c and d are correct.

Solutions

Expert Solution

Ans- Option C is correct

- The IRR and NPV methods may provide conflicting recommendations when choosing among mutually exclusive projects as NPV chooses project having NPV greater than zero while IRR choose project having IRR greater than WACC. They may differ in choosing which is best as Mutual exclusive projects.

a. The IRR and NPV methods will not provide conflicting recommendations when choosing independent projects

b.  The discounted payback period method discounts accounting Cashflows rather than earnings at the cost of capital for risky projects.

c. Pay Back period is not the best method rather NPV is considered best method

jeff jeffy answered 2 years ago
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