Final answer:
Net Present Value (NPV) is the capital investment analysis method that includes both profitability and time value of money, which calculates the present discounted value of future cash flows and accounts for the actual rate of return.
Step-by-step explanation:
The capital investment analysis method that includes both profitability and the time value of money to evaluate projects is known as Net Present Value (NPV). NPV calculates the present discounted value of future cash flows, both inflows and outflows, associated with a project. By discounting future cash flows to the present, NPV accounts for the time value of money, essentially stating that a dollar today is worth more than a dollar in the future due to its potential earning capacity. This method also incorporates the actual rate of return, which is the total rate of return, including capital gains and interest paid on investment at the end of a time period. Therefore, NPV serves as a comprehensive tool that evaluates the profitability of a project considering the time preferences of money, thereby guiding businesses and governments in their capital investment decisions.