Amster Corporation has not yet decided on the required rate of return to use in its capital budgeting. This lack of information
will prevent Amster from calculating a project's:
1 answer:
Answer: Option D
Explanation:
I have attached the options to this solution.
The Required Rate of return is not used in Calculating the Payback Period. The Payback period is simply how long it will take for a project to pay back it's initial investment and the cashflows are taken as is. The Discounted Payback period is the Capital Budgeting method that uses the Required Rate of return.
The Net Present Value uses the Required rate of return to discount all costs and benefits that result from a project so that a company may be able to tell if their project will indeed make a profit given their required rate of return.
The Internal Rate of Return does not use the Required Rate of Return because it is the Rate of Return that equates the NPV to $0. It is therefore a rate of return in its own right that does not require the Required Rate of Return to be calculated.
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