(L. OBJ. 1) Describing the importance of capital investments and the capital budgeting process [10—15 min]
Consider the following statements about capital budgeting.
a. _______ and _______ work well for capital investments with a relatively short life span.
b. _______ highlights risky investments.
c. _______ uses accrual accounting income rather than net cash flows in its computation.
d. _______ uses discounted cash flows to determine the asset’s unique rate of return.
e. In capital rationing decisions, management must identify the required rate of return when the _______ method is used.
f. _______ provides management with information on how fast the cash invested will be recouped.
g. _______ finds the discount rate which brings the investment’s NPV to zero.
h. _________ does not consider the asset’s profitability.
i. _______ is calculated by dividing the average amount invested by the asset’s average annual operating income.
Requirement
1. Fill in each statement with the appropriate capital budgeting method: Payback period, ARR, NPV, or IRR.
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