Which of the following statements about capital investment analysis is most corr

Question

Which of the following statements about capital investment analysis is most correct?

A - Although a useful accounting concept, breakeven analysis has no role in capital investment analysis.

B - Net present value (NPV) measures a projectÕs rate of return, whereas internal rate of return (IRR) measures a projectÕs dollar return.

C - An NPV of zero indicates that the project is expected to return the amount of the initial investment, but it will not provide a return on that investment.

D - On most projects, the NPV and IRR measures will give conflicting results, so managers must use judgment as to which measure to use.

E - Payback measures the length of time it takes to recover the initial investment in the project.

Explanation / Answer

The correct choice is E. Payback period is calculated as the time required for a project to return the initial investment. All the other statements are false

Breakeven analysis is not uselful in capital investment anaysis but uselful in operating results analysis

NPV = $ return whereas IRR = % of return

NPV of zero means that project has a return which is exactly equal to the cost of capital

NPV & IRR gives conflicting results but NPV is preferred over IRR not judgement

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