Question

Southern Chicken is considering two projects. Project A consists of creating an outdoor eating area on the unused portion of the restaurant's property. Project B would use that outdoor space for creating a drive-thru service window. When trying to decide which project to accept, the firm should rely most heavily on which one of the following analytical methods?

Answer 1

Answer:

Net present value  

Explanation:

A capital budgeting is a process of measuring the ways it helps the businesses or companies to decide and control the financial profitability  as well as the long-term economic of any investment project.

It is planning process which examines the organisation's investment is worth funding or not. It creates measurability and accountability.

There are various methods of capital budgeting. And the best measure for capital budgeting is Net present value. The reasons are --

• Net present value considers the reinvestment of cash transaction at the discount rate where as another method of Internal Rate Return considers reinvestment at the IRR rate.
• Net present value considers time value of investment and consider whole period of transaction. While Payback period as well as discounted payback period methods does not provides such considerations.

Thus Net present value is the most accurate and effecting method of capital budgeting.

Therefore the answer is ---

Net present value