Chapter 11 Home Grades Personalized Reviews Discussion Course Materials The Basi

Question

Chapter 11 Home Grades Personalized Reviews Discussion Course Materials The Basics of Capital Budgeting Graded Assignment | Read Chapter 11 | Back to Due Sunday 07.01.18 at 11:45 PM Attempts: Keep the Highest: 14 8. Conclusions about capital budgeting The decision process Before making capital budgeting decisions, finance professionals often generate, review, analyze, select, and implement long-term investment proposals that meet firm-specific criteria and are consistent with the firm's strategic goals Companies often use several methods to evaluate the project's cash flows and each of them has its benefits and disadvantages. Based on your understanding of the capital budgeting evaluation methods, which of the following condlusions about capital budgeting are valid? Check all that apply. D For most firms, the reinvestment rate assumption in the MIRR is more realistic than the assumption in the IRR The NPV shows how much value the company is creating for its shareholders. Because the MIRR and NPV use the same reinvestment rate assumption, they always lead to the same accept/reject decision for mutually exclusive projects True or False: Sophisticated firms use only the NPV method in capital budgeting decisions O True O False Grade it Now Continue without saving

Explanation / Answer

FALSE - NPV is considered to be the single best method for capital budgeting decisions because it provides a direct measure of the project’s added value to shareholder wealth. However, sophisticated firms generally calculate all five measures (NPV, IRR, payback period, discounted payback period, and MIRR) when evaluating capital budgeting decisions, because each provides different information. Calculating all the measures is easy, so all should be considered when making capital budgeting decisions.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.