Question

Once cash flows have been estimated, which of the following investment criteria can be applied to them?

a) IRR
b) NPV
c) Payback period
d) YTM

Answer 1

The investment criteria that can be applied to estimated cash flows are IRR, NPV, and Payback period.

Step-by-step explanation:

The investment criteria that can be applied to estimated cash flows are:

1. IRR (Internal Rate of Return): This metric calculates the rate of return that makes the net present value of an investment equal to zero. It helps assess the profitability of the investment and determines if it meets the desired return.
2. NPV (Net Present Value): This criterion evaluates the profitability of an investment by comparing the present value of cash inflows to the present value of cash outflows. A positive NPV indicates a favorable investment.
3. Payback period: This measures the length of time required for an investment to recover its initial cost. It focuses on the time it takes to recoup the investment amount.