Evaluating a Budget Using the Net Present Value Method


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Why is capital budgeting important for companies?

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1. What components make net present value the best method for evaluating new projects?

2. The weighted average cost of capital is defined as _____.

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About This Quiz & Worksheet

To find out how much you know about net present value, complete this quiz and worksheet combo. You will be tested on the components of net present value (NPV) and using multiple projects with the NPV method.

Quiz & Worksheet Goals

You will be asked about the following:

  • Importance of capital budgeting
  • Beneficial components of NPV
  • Definition of weighted average cost of capital
  • Best project to choose when dealing with limited resources

Skills Practiced

  • Defining key concepts - accurately define the average cost of capital
  • Information recall - access the knowledge you have obtained regarding capital budgeting
  • Distinguishing differences - compare the use of unlimited and limited resources

Additional Learning

To learn more, use the lesson titled Evaluating a Budget Using the Net Present Value Method. Inside, you can find the following topics:

  • Mutually exclusive projects
  • The decision rule
  • The different kinds of costs in starting an establishment
  • Cost reduction and increasing cash flow