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Question

A capital budgeting technique which does not require the computation of cost of capital for decision making purposes is:

A Net Present Value method Correct Answer Incorrect Answer
B Internal Rate of Return method Correct Answer Incorrect Answer
C Modified Internal Rate of Return method Correct Answer Incorrect Answer
D Payback Period method Correct Answer Incorrect Answer
E Accounting Rate of Return method Correct Answer Incorrect Answer

Solution

The payback period method is a capital budgeting technique that measures the time required to recover the initial investment in a project. It does not require the computation of cost of capital for decision making purposes, making it a simple and easy-to-use method. The payback period is calculated by dividing the initial investment by the expected annual cash inflows from the project.

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