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Capital budgeting involves…………..
Analyzing the costs,risks, potential returns
What does NPV stand for?
Net Present Value
Which method focuses on the time it takes to recover an initial investment
Payback period
What is the main purpose of calculating the Internal Rate of Return
To evaluate profitability against the cost of capital
Which capital budgeting method is expressed as a ratio of discounted cash inflows to initial investment
Profitability Index
What does sensitivity analysis help investors understand?
The effect of changes in key assumptions on investment outcomes
What is the primary goal of capital budgeting
Maximizing shareholder value
Which method calculates the present value of future cash flows?
Present Value
What does a positive NPV indicate?
The investment is risky
The discount rate used in NPV calculations typically reflects:
The firm’s cost of capital
Which capital budgeting method does not consider the time value of money?
Payback period
What is the main purpose of capital budgeting?
evaluate and select long-term investment projects that will maximize shareholder value.
What does IRR stand for?
Internal Rate of Return
Which method provides the most accurate measure of an investment’s profitability?
Net Present VALUE
What is the primary limitation of the Payback Period method?
) It does not account for cash flows after the payback period
A budget is…….
financial plan that outlines expected revenues and expenditures over a specific period, usually a Year
