Methods that ignore present value in capital investment analysis include the cash payback method.
Which method of evaluating capital investment proposals uses the concept of present value?
The correct answer is option a.
In capital budgeting, computing the internal rate of return in evaluating capital investment proposals uses the present value concept.
Which of the following qualitative considerations may impact capital investments analysis?
All of the following qualitative considerations may impact upon capital investments analysis except: manufacturing sunk cost. … that local currency may weaken to the dollar causing adverse effects on the investment’s return.
Which of the following is an advantage of the payback method of evaluating capital investment proposals?
The most significant advantage of the payback method is its simplicity. It’s an easy way to compare several projects and then to take the project that has the shortest payback time.
What are the factors that can complicate the capital investment analysis?
Factors that may complicate capital investment analysis include the impact of the federal income tax, unequal lives of alternative proposals, leasing, uncertainty, changes in price levels, and qualitative considerations.
What are the methods of evaluating a capital investment?
There are several capital budgeting analysis methods that can be used to determine the economic feasibility of a capital investment. They include the Payback Period, Discounted Payment Period, Net Present Value, Proﬁtability Index, Internal Rate of Return, and Modiﬁed Internal Rate of Return.
What is capital investment analysis?
Capital investment analysis is a budgeting procedure that companies and government agencies use to assess the potential profitability of a long-term investment. Capital investment analysis assesses long-term investments, which might include fixed assets such as equipment, machinery, or real estate.
What method can be used to place two capital investment proposals with unequal lives on a comparable basis?
The equivalent annuity method expresses the NPV as an annualized cash flow by dividing it by the present value of the annuity factor. It is often used when comparing investment projects of unequal lifespans.
When analysis of an investment proposal by the net present value method indicates that the present value exceeds the amount to be invested?
An analysis of a proposal by the net present value method indicated that the present value of future cash flows exceeded the amount to be invested.
Which of the following evaluation methods consider time value of money?
The correct option is (b) Net present value.
Net present value is the method that considers the time value of money for evaluating alternative capital expenditures. It is used to evaluate the current value of all future cash flows generated by the project including the initial value of the capital investment.
Which one of the following is an advantage of the payback method?
Which of the following is an advantage of the payback method? Both the technique is simple for managers to compute and interpret and it is a good measure of liquidity risk.
Which one of the following are advantages of the payback method of project analysis?
Which of the following are advantages of the payback method of project analysis? A project has a discounted payback period that is equal to the required payback period. … The project’s internal rate of return must equal the required return.
Why is the payback method used?
The payback period is an effective measure of investment risk. It is widely used when liquidity is an important criteria to choose a project. Payback period method is suitable for projects of small investments. It not worth spending much time and effort in sophisticated economic analysis in such projects.
What is investment analysis?
Investment analysis involves researching and evaluating a security or an industry to predict its future performance and determine its suitability to a specific investor. Investment analysis may also involve evaluating or creating an overall financial strategy.
Which of the following methods does not consider the investments profitability?
1) The answer is: a) Payback . The payback method only considers how long it will take to pay back the initial investment.
What are the three steps in investment analysis?
Terms in this set (6)
- Identify the investment opportunity. …
- Determine whether the project will generate greater profits than other alternative opportunities (based on expected cash flows related to investment, taking timing into consideration)
- Assess whether the expected return can compensate for the risks.