Question

The time value of money is explicitly considered in which one of the following capital budgeting method(s)?

Answer 1

The time value of money is explicitly considered in Net present value (NPV) capital budgeting methods.

The process of deciding whether to invest in capital assets is known as capital budgeting. Companies can more efficiently assess and prioritize which projects, programs, and other investment assets could be the most financially advantageous in the long-term by integrating strategically planned capital budgeting into their financial processes. Internal Rate of Return, Net Present Value, Profitability Index, Accounting Rate of Return, and Payback Period are the five capital budgeting methodologies.

An investment opportunity's whole value is intended to be captured by the financial term known as Net Present Value (NPV). The goal of NPV is to forecast all potential future cash inflows and outflows related to an investment, discount each one to the present, and then tally them all up.

Learn more about capital budgeting methods here:

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