Recent surveys of the CFOs of large U.S. companies rank the popularity of major capital budgeting methods in which order

Recent surveys of the CFOs of large U.S. companies rank the popularity of major capital budgeting methods in which order?

A) IRR, NPV, Payback, Discounted Payback, Profitability Index

B) Payback, Discounted Payback, Profitability Index, IRR, NPV

C) NPV, IRR, Profitability Index, Discounted Payback, Payback

D)  NPV, IRR, Payback, Discounted Payback, Profitability Index

Which of the following best explains the continuing popularity of the payback method?

A) Mathematical simplicity and some insight into the riskiness of cash flows.

B) Uses all cash flows and takes into account the time value of money.

C) Reliably selects the projects that add most value to the firm.

D) It provides objective selection criteria and is taught as the primary method in most business schools.

With respect to the capital budgeting practices of large U. S. corporations

A) the profitability index has been gaining in popularity.

B) IRR and NPV have been gaining in popularity.

C) payback and discounted payback have been gaining in popularity.

D) IRR and NPV have declined in popularity.

Which of the following techniques will always produce a single rate of return estimate?

A) IRR

B) MIRR

C) PI

D) Discounted payback

Which of the following techniques might be useful in situations where the economic life of a project is highly uncertain?

A) IRR

B) MIRR

C) PI

D) Discounted payback

Which of the following techniques might be useful in situations where mutually exclusive projects have unequal lives?

A) IRR

B) Equivalent annual cost (EAC).

C) PI

D) Discounted payback

When various capital budgeting techniques rank mutually exclusive projects differently, which of the following is theoretically most reliable?

A) IRR

B) Equivalent annual cost (EAC).

C) NPV

D) Discounted payback

Many firms today continue to use the payback method but employ the NPV or IRR methods as secondary decision methods of control for risk.

Answer:  FALSE

Currently, most firms use NPV and IRR as their primary capital-budgeting technique.

Answer:  TRUE

Most firms use the payback period as a secondary capital-budgeting technique, which in a sense allows them to control for risk.

Answer:  TRUE

Although discounted cash flow decision techniques have become widely accepted, their use depends to some degree on the size of the project and where within the firm the decision is being made.

Answer:  TRUE

Briefly describe the actual capital budgeting methods of large U.S. corporations.

Answer:  According to recent surveys of CFOs, the most common methods are IRR and NPV used by more than 70% of large corporations. The payback method remains popular and is used as a primary or secondary method by almost 60% of those surveyed, perhaps because of its simplicity and for a quick calculation of risk.