What are the primary strengths and weaknesses of the Net Present Value method of capital budgeting?
What will be an ideal response?
The major strength of the net present value method is that it takes into account the time value of money through the discount rate. It implicitly makes the reasonable assumption that any interim cash flows from the project are reinvested at the firm's cost of capital. One weakness of the net present value method is that it provides an answer in dollar terms while many managers focus on percentage returns when assessing projects. The greatest challenges with the net present value approach are determining realistic cash flow estimates and estimating an appropriate hurdle rate.
You might also like to view...
The executive director of the Global Good Fund argues that relying on earned income makes an organization ______.
A. prone to risk B. more flexible C. open to opportunity B. unattractive to corporate partners
An auctioneer is the offeror and a contract is formed when a bid is made
a. True b. False Indicate whether the statement is true or false
Bo and Clancy decide to do business as Deck & Patio Awnings. To be a partnership, this association can result from an agreement that is
A. express, but not from an agreement that is implied. B. implied, but not from an agreement that is express. C. oral, written, or implied by conduct. D. written, but not from an agreement that is oral or implied.
The cost of capital of each source of financing is the after-tax cost of obtaining the financing using the historically based cost reflected by the existing financing on the firm's books
Indicate whether the statement is true or false