Question

Capital budgeting is primarily concerned with:_________A. capital formation in the economy.B. planning future financing needs.C. evaluating investment alternatives.D. minimizing the cost of capital.

Answer 1

Answer:

C

Explanation:

Capital budgeting are the methods employed by  is the process that a businesses  to determine which which investments  to accept, and which should be declined.

Some of the capital budgeting methods are :

1. Net present value

Net present value is the present value of after-tax cash flows from an investment less the amount invested.  

NPV can be calculated using a financial calculator  

2. Internal Rate of Return

Internal rate of return is the discount rate that equates the after-tax cash flows from an investment to the amount invested

3. Profitability Index

profitability index = 1 + (NPV / Initial investment)  

4. Accounting rate of return = Average net income / Average book value  

Average book value = (cost of equipment - salvage value) / 2

5. Payback period

Payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative cash flows

Payback period = Amount invested / cash flow

6. Discounted payback period

Discounted payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative discounted cash flows