Alternative Approaches to Capital Budgeting Decisions


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question 1 of 3

For the following information, how long it will take for a business to recover its investment, using the payback method?

Amount of the investment = $50,000

Annual cash inflow = $10,000

Net income = $25,000

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For the following information, what is the simple rate of return?

Incremental revenue = $40,000
Incremental costs = $15,000
Amount of investment = $100,000
Annual cash flow = $50,000.

2. Which of the following is a disadvantage of both the payback method and the simple rate of return regarding capital assets?

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About This Quiz & Worksheet

The quiz and worksheet are effective tools for testing your knowledge of alternative approaches to capital budgeting decisions. Calculating the simple rate of return and using the payback method are some things you need to know how to do for the quiz.

Quiz & Worksheet Goals

You will be assessed on:

  • A major advantage of using the payback method
  • Disadvantage of the payback method and the simple rate of return
  • The purpose of assessing the long-term financial benefits of a possible capital asset purchase
  • Using the payback method
  • Calculating the simple rate of return

Skills Practiced

  • Problem solving - use acquired knowledge to solve a problem using the simple rate of return
  • Information recall - access the knowledge you have gained about using the payback method
  • Reading comprehension - ensure that you draw the most important details from the lesson on capital budgeting choices

Additional Learning

Cover more about these topics using the lesson named, Alternative Approaches to Capital Budgeting Decisions. Use this lesson to analyze more about:

  • Examples of capital assets
  • The purpose of the payback method
  • What revenue represents