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19 April, 14:19

Which capital budgeting method is most useful for evaluating a project that has an initial afterminustax cost of $5,000,000 and is expected to provide afterminustax operating cash flows of $1,800,000 in year 1, ($2,900,000) in year 2, $2,700,000 in year 3, and $2,300,000 in year 4?

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  1. 19 April, 16:22
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    (NPV) Net present value method is the most effective capital budgeting method

    Explanation:

    we know here

    initial after minus tax cost = $5,000,000

    after minus tax cash flows in 1st year = $1,800,000

    and in 2nd year = $2,900,000

    and in 3rd year = $2,700,000

    and 4th year is = $2,300,000

    so here cash outflows even after the initial outlay in year 0

    so we not use here IRR

    so that best and most most effective capital budgeting method is NPV net present value

    we use it NPV
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