On Capital Budgeting and Investment * Statement I: Accounting rate of return does not recognize the time value of money. Statement II: The NPV method discounts all cash flows at the cost of capital, thus implicitly assuming that these cash flows can be reinvested at this rate. Statement III: If two mutually exclusive projects have unequal lives, either of the two methods may be used for the analysis: the replacement chain (common life) approach and the equivalent annual annuity (EAA).
On Capital Budgeting and Investment * Statement I: Accounting rate of return does not recognize the time value of money. Statement II: The NPV method discounts all cash flows at the cost of capital, thus implicitly assuming that these cash flows can be reinvested at this rate. Statement III: If two mutually exclusive projects have unequal lives, either of the two methods may be used for the analysis: the replacement chain (common life) approach and the equivalent annual annuity (EAA).
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
CHOICES
A. Only Statement I is correct
B. Only Statement II is false
C. Statements II and III are false
D. Only Statement III is false
E. All statements are correct
Transcribed Image Text:On Capital Budgeting and Investment *
Statement I: Accounting rate of return does not recognize the time value of money.
Statement II: The NPV method discounts all cash flows at the cost of capital, thus
implicitly assuming that these cash flows can be reinvested at this rate.
Statement III: If two mutually exclusive projects have unequal lives, either of the two
methods may be used for the analysis: the replacement chain (common life) approach and
the equivalent annual annuity (EAA).
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