Question

According to Graham and Harvey's 1999 survey of 392 CFOs, which of the following two capital budgeting methods are most used by firms in the U.S. and Canada?

a) Net Present Value (NPV) and Internal Rate of Return (IRR)
b) Payback Period and Accounting Rate of Return (ARR)
c) Profitability Index and Discounted Payback Period
d) Modified Internal Rate of Return (MIRR) and Return on Investment (ROI)

Answer 1

The most used capital budgeting methods according to Graham and Harvey's survey are Net Present Value (NPV) and Internal Rate of Return (IRR). These methods help firms evaluate the profitability of investments by considering the present discounted value of future cash flows.

Step-by-step explanation:

According to Graham and Harvey's 1999 survey of 392 CFOs, the two capital budgeting methods most used by firms in the U.S. and Canada are Net Present Value (NPV) and Internal Rate of Return (IRR). These methods are key in making decisions about investments that involve current expenditures with future returns, such as purchasing machinery or building new facilities. When choosing methods of financing these investments, companies must consider various sources of financial capital, including early-stage investors, reinvested profits, loans, and stock sales. The use of NPV and IRR allows firms to assess the profitability and efficiency of their investments by taking into account the present discounted value of future cash flows.