Which of the following methods of evaluating capital projects incorporate an explicit discount rate into the equation?
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A. B. C. D. E.D
Of the methods for evaluating capital projects, the Net Present Value, Modified Internal Rate of Return, and Discounted Payback Period Methods incorporate an explicit discount rate into their equations. This discount rate is often referred to as the "cost of capital" for the project being examined. Remember that the Internal
Rate of Return equation does not involve the incorporation of an explicit discount rate,rather solves to find that rate which equates the present value of a project's cash inflows with that of its cash outflows. Additionally, the "Payback Period" method does not involve an explicit discount rate, rather fails to incorporate any form of discounting into its calculation. The Payback Period is an overtly simplistic method, and as such, the figures produced by this method should be viewed with a degree of caution.