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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