Question

Which methods of evaluating a capital investment project use cash flows as a measurement basis?

Net present value, accounting rate of return, and internal rate of return.

Internal rate of return, payback period, and accounting rate of return.

Accounting rate of return, net present value, and payback period. Payback period, internal rate of return, and net present value.

Net present value, payback period, accounting rate of return, and internal rate of return.

Answer 1

Net Present Value, Accounting Rate of Return, Internal Rate of Return.
Explanations :
Net Present Value : This method established a target below which a proposal would be rejected by the management as undesirable in the light of the profit goal and above which it would be considered favourable. This method takes full account of the time value of money. In this method, all cash flows over the life of the project are considered.

Accounting Rate of Return : This method requires the addition of all the earnings after depreciation and dividing them by the project economic life. In this method,  all cash flows are considered over the entire economic life of the project.

Internal Rate of Return : This method takes into account the time value of money.  It represents the time interest rate earned on an investment over the course of its economic life. Internal Rate of Return  is the minimum cost of capital that can be applied without causing harm to the shareholders.  In this method,  the cash flows over the useful life of the project are considered.

Net Present Value, Accounting Rate of Return, Internal Rate of Return.