Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Introduction to Investments in Securities

Financial Accounting

7. Receivables and Investments

Introduction to Investments in Securities

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Multiple Choice

Most of the capital budgeting methods use which of the following as a basis for evaluating investment projects?

Market value of the company's stock

Cash flows generated by the project

Total assets of the company

Net income reported on the income statement

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Verified step by step guidance

Understand the concept of capital budgeting: Capital budgeting is the process of evaluating and selecting long-term investment projects based on their potential to generate returns. It focuses on the financial viability of projects.

Identify the key basis for evaluation: Capital budgeting methods primarily rely on cash flows generated by the project, as cash flows represent the actual inflow and outflow of money, which is critical for assessing the project's profitability and feasibility.

Eliminate irrelevant options: The market value of the company's stock, total assets of the company, and net income reported on the income statement are not directly used in capital budgeting evaluations. These metrics are more relevant for other financial analyses, such as stock valuation or balance sheet assessments.

Recognize the importance of cash flows: Cash flows are used in methods like Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period because they provide a clear picture of the project's financial impact over time.

Conclude the basis for evaluation: The correct answer is 'Cash flows generated by the project,' as this is the foundation for most capital budgeting methods to determine the project's potential return on investment.