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The discount rate is determined in advance for which of the following capital budgeting techniques?
a. Payback.
b. Net present value.
c. Accounting rate of return.
d. Internal rate of return.
答案:B
Explanation
Choice "b" is correct. The discount or hurdle rate is determined in advance for computations of net present value. Project cash flows are discounted based upon a predetermined rate and compared to the investment in the project to arrive at a positive or negative net present value. Advance determination of management's required return is integral to the development and evaluation of net present value.
Choice "a" is incorrect. The payback method computes the period of time required to recover the cost of an investment and does not require a predetermined discount rate.
Choice "c" is incorrect. The accounting rate of return computes a percentage return based upon accrual basis data and does not require a predetermined discount rate.
Choice "d" is incorrect. The internal rate of return computes a rate of return that produces a net present value of zero and does not require a predetermined rate. The computed internal rate of return is evaluated in relation to management's required hurdle rate after the computation is done.
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