9. Conclusions about capital budgeting

The decision process

Before making capital budgeting decisions, finance professionals often generate, review, analyze, select, and implement long-term investment proposals that meet firm-specific criteria and are consistent with the firms strategic goals.

Companies often use several methods to evaluate the projects cash flows and each of them has its benefits and disadvantages. Based on your understanding of the capital budgeting evaluation methods, which of the following conclusions about capital budgeting are valid? Check all that apply.

Because the MIRR and NPV use the same reinvestment rate assumption, they always lead to the same accept/reject decision for mutually exclusive projects.

For most firms, the reinvestment rate assumption in the MIRR is more realistic than the assumption in the IRR.

The NPV shows how much value the company is creating for its shareholders.

True or False: Sophisticated firms use only the NPV method in capital budgeting decisions.

False

True