Answer:
Payback Period, Internal Rate of Return, and Net Present Value use cash flows for evaluating capital investment projects.
Explanation:
There are three methods of evaluating a capital investment project that use cash flows as a measurement. These include Payback Period, Net Present Value and Internal Rate of Return. The payback period gives the idea about the time that is required for a person to get back his initial investment. Internal rate of return is used to determine profitability of potential investment. Net present value refers to the difference between the present value of cash outflows and the cash inflows for a specific period of time.
Further explanation:
The Payback period: In this method of payback period, it simply calculates the amount of time that it will take to get one’s original investment back. It helps in analyzing any risks related to investments. An investment with a lesser payback period is seen as a better investment because investor’s original expenses are at risk for a lesser time.
Internal rate of return: Internal rate of return makes use of the discount rates which makes the present value of cash flows in future, equivalent to zero. This strategy helps in comparing the profitability of various investments in different projects.
Net present value: The net present value method makes use of investor's requisite rate of return to compute the present price of future cash flow from the project. Net Present Value is used in creating capital budget and investment planning to estimate the profitability of the project.
Learn More:
Disadvantage of the payback period method : brainly.com/question/13168811 - (Stokholm)
Project acceptance when NPV is used brainly.com/question/13228231 - (Matiasemella)
Keywords:
Capital investment project, cash flow, payback period, internal rate of return, net present value.
