Final answer:
The measures used by firms when making capital budgeting decisions include net present value, internal rate of return, and payback period.
Step-by-step explanation:
The measures used by firms when making capital budgeting decisions include net present value, internal rate of return, and payback period.Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. It measures the profitability of an investment by discounting future cash flows to their present value.Internal rate of return (IRR) is a percentage rate of return that equates the present value of future cash inflows with the present value of cash outflows.
It measures the rate of return an investment is expected to generate.Payback period is the length of time it takes for an investment to recover its initial cost. It measures the time it takes to recoup the investment.The P/E ratio, which stands for price-to-earnings ratio, is not a measure used in capital budgeting decisions. It is a valuation ratio that compares a company's current share price to its earnings per share.