In which of the following appraisal criteria of capital budgeting, the use of varying opportunity cost…
Net present value can discount cash flows using different opportunity costs of capital for different periods. The internal rate of return instead solves for a single rate…
Choose your answer
In which of the following appraisal criteria of capital budgeting, the use of varying opportunity cost of capital as a discount factor is possible?
a) NPV
b) IRR
c) Pay-back Period
d) ARR
Answer and explanation
Correct answer A
Net present value can discount cash flows using different opportunity costs of capital for different periods. The internal rate of return instead solves for a single rate that makes net present value zero; payback and accounting rate of return do not use these discount factors.
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Tamil Nadu SET (TNSET)