Assumptions of capital budgeting methods For each of the following assumptions that underlie the capital project evaluation methods, indicate to which method, or methods, the assumption applies. Consider all of the following methods: payback, NPV, PI, IRR, and ARR (from Appendix 15-2). a. Speed of investment recovery is a key investment criterion. b. Cash inflows can be reinvested at the hurdle rate. c. Cash inflows can be reinvested at the IRR. d. Timing and size of cash flows can be accurately predicted. e. Life of project can be accurately predicted. f. Risk is higher for cash flows in the more distant future. g. Key consideration in evaluating projects is their effects on accounting earnings. a. b. C. d. aj f. Payback NPV g. ( O ( (> PI IRR 4) 4) ARR O ( (

Assumptions of capital budgeting methods For each of the following assumptions that underlie the capital project evaluation methods, indicate to which method, or methods, the assumption applies. Consider all of the following methods: payback, NPV, PI, IRR, and ARR (from Appendix 15-2). a. Speed of investment recovery is a key investment criterion. b. Cash inflows can be reinvested at the hurdle rate. c. Cash inflows can be reinvested at the IRR. d. Timing and size of cash flows can be accurately predicted. e. Life of project can be accurately predicted. f. Risk is higher for cash flows in the more distant future. g. Key consideration in evaluating projects is their effects on accounting earnings