Which capital budgeting method is most useful for evaluating a project that has an initial afterminustax cost of $5,000,000 and is expected to provide afterminustax operating cash flows of $1,800,000 in year 1, ($2,900,000) in year 2, $2,700,000 in year 3, and $2,300,000 in year 4?

Question

Maryjane Graham

Business

11 May, 04:01

Which capital budgeting method is most useful for evaluating a project that has an initial afterminustax cost of $5,000,000 and is expected to provide afterminustax operating cash flows of $1,800,000 in year 1, ($2,900,000) in year 2, $2,700,000 in year 3, and $2,300,000 in year 4?

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Answers (1)

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Luna Baxter · Answer 1

(NPV) Net present value method is the most effective capital budgeting method

Explanation:

we know here

initial after minus tax cost = $5,000,000

after minus tax cash flows in 1st year = $1,800,000

and in 2nd year = $2,900,000

and in 3rd year = $2,700,000

and 4th year is = $2,300,000

so here cash outflows even after the initial outlay in year 0

so we not use here IRR

so that best and most most effective capital budgeting method is NPV net present value

we use it NPV