Question

Which capital investment tool for assessing and selecting projects is often used as a screening​ tool?

a) Net Present Value (NPV)
b) Payback Period
c) Internal Rate of Return (IRR)
d) Profitability Index (PI)

Answer 1

The Payback Period is commonly used as a screening tool for capital investment decisions, assessing the time it takes for an investment to repay its initial cost.

Step-by-step explanation:

The capital investment tool often used as a screening tool for assessing and selecting projects is the Payback Period. This tool evaluates how quickly an investment would pay for itself, which is particularly useful in determining the risk and liquidity of projects. Although not as comprehensive as some other tools, like Net Present Value (NPV) or Internal Rate of Return (IRR), the Payback Period is simpler and can quickly screen out projects that may not meet a company's payback threshold.