Final answer:
In capital budgeting, the P/E ratio is not used as a measure, contrary to Payback period, IRR, and NPV. The P/E ratio pertains to stock valuation rather than assessing the value of a capital investment project. Option c is the correct answer.
Step-by-step explanation:
When making capital budgeting decisions, firms use various metrics to evaluate the potential profitability and viability of investments. The options listed pertain to measures typically used to assess the worthiness of a capital project, except for one. The Payback period assesses the time required to recover the initial investment.
The Internal Rate of Return (IRR) measures the profitability of potential investments, calculated as the rate which makes the net present value (NPV) of all cash flows equal to zero.
The Net Present Value (NPV) represents the value of all future cash flows over the entire life of the investment discounted to the present. However, the P/E ratio, or Price to Earnings ratio, is a valuation metric for stocks and does not directly apply to capital budgeting decisions in the way the other measures do.
Capital budgeting is central to a firm's strategic financial management, assessing whether potential long-term investments or projects are financially feasible and worth pursuing.
Considerations in capital budgeting often involve significant outlays of capital, anticipated future earnings, and the assessment of risks and returns. The choice of funding—whether from reinvesting profits, borrowing through banks or bonds, to selling stock - will also have an impact on these financial measures and the overall decision-making process.
Therefore, among the options provided, the P/E Ratio is not a measure used in capital budgeting decisions. To summarize, the correct option that is not used in capital budgeting is C. P/E ratio.