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

Which one of the following capital budgeting techniques is generally preferred for evaluating most investment projects?

Payback Period

Net Present Value (NPV)

Accounting Rate of Return (ARR)

Internal Rate of Return (IRR)

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Verified step by step guidance

Understand the concept of capital budgeting techniques: Capital budgeting techniques are methods used to evaluate investment projects and decide whether they are worth pursuing. Common techniques include Payback Period, Net Present Value (NPV), Accounting Rate of Return (ARR), and Internal Rate of Return (IRR).

Learn about Net Present Value (NPV): NPV is a method that calculates the present value of future cash flows generated by a project, discounted at the project's cost of capital. It helps determine whether the project will add value to the company. A positive NPV indicates a profitable investment.

Compare NPV to other techniques: While Payback Period focuses on the time required to recover the initial investment, it ignores the time value of money. ARR evaluates profitability based on accounting income, but it does not consider cash flows or the time value of money. IRR calculates the discount rate at which NPV equals zero, but it can be less reliable for projects with non-conventional cash flows.

Understand why NPV is preferred: NPV is generally preferred because it accounts for the time value of money, provides a direct measure of the value added to the firm, and aligns with the goal of maximizing shareholder wealth. It is considered the most reliable method for evaluating investment projects.

Apply NPV in practice: To calculate NPV, use the formula:

NPV = \sum C_{t} / (1 + r) t - C o

, where Ct represents cash inflows, r is the discount rate, t is the time period, and Co is the initial investment. This formula helps determine the project's profitability.