Question

Which capital budgeting method is most useful for evaluating a project that has an initial afterminustax cost of​ $5,000,000 and is expected to provide afterminustax operating cash flows of​ $1,800,000 in year​ 1, ($2,900,000) in year​ 2, $2,700,000 in year​ 3, and​ $2,300,000 in year​ 4?

Answer 1

Answer:

(NPV) Net present value method is the most effective capital budgeting method

Explanation:

we know here  

initial after minus tax cost = ​ $5,000,000

after minus tax cash flows in 1st year =​ $1,800,000

and in 2nd year = $2,900,000

and in 3rd year  = $2,700,000

and 4th year is = $2,300,000

so here cash outflows even after the initial outlay in year 0

so we not use here IRR

so that best and most most effective capital budgeting method  is NPV net present value

we use it NPV