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Which method of capital budgeting focuses on liquidity of a project?
- a)Net present value
- b)Profitability index
- c)Payback period
- d)Internal rate of returns
Correct answer is option 'C'. Can you explain this answer?
Verified Answer
Which method of capital budgeting focuses on liquidity of a project?a)...
Capital budgeting is the process that a business uses to determine which proposed fixed asset purchases it should accept, and which should be declined. There are different methods adopted for capital budgeting.
Payback period method of capital budgeting focuses on liquidity of a project. This method refers to the period in which the proposal will generate cash to recover the initial investment made. It purely emphasises on the cash inflows, economic life of the project and the investment made in the project, with no consideration to time value of money. Through this method selection of a proposal is based on the earning capacity of the project.
Payback period method of capital budgeting focuses on liquidity of a project. This method refers to the period in which the proposal will generate cash to recover the initial investment made. It purely emphasises on the cash inflows, economic life of the project and the investment made in the project, with no consideration to time value of money. Through this method selection of a proposal is based on the earning capacity of the project.
Most Upvoted Answer
Which method of capital budgeting focuses on liquidity of a project?a)...
Payback Period:
The payback period method of capital budgeting focuses on the liquidity of a project. It calculates the amount of time it takes for a project to generate enough cash flows to recover the initial investment. This method is particularly useful for companies that prioritize short-term liquidity and want to ensure quick returns on their investments.
How it works:
- The payback period is calculated by dividing the initial investment by the annual cash inflows until the initial investment is fully recovered.
- The shorter the payback period, the more liquid the project is considered to be, as it indicates a faster return of the initial investment.
Advantages:
- Easy to understand and calculate.
- Provides a quick assessment of liquidity and risk.
- Helps in decision-making for projects with short-term liquidity concerns.
Limitations:
- Ignores cash flows beyond the payback period.
- Does not consider the time value of money.
- May lead to overlooking profitable projects with longer payback periods.
In conclusion, the payback period method is a simple and effective way to assess the liquidity of a project by focusing on how quickly the initial investment can be recovered. It is a valuable tool for companies looking to prioritize short-term liquidity in their capital budgeting decisions.
The payback period method of capital budgeting focuses on the liquidity of a project. It calculates the amount of time it takes for a project to generate enough cash flows to recover the initial investment. This method is particularly useful for companies that prioritize short-term liquidity and want to ensure quick returns on their investments.
How it works:
- The payback period is calculated by dividing the initial investment by the annual cash inflows until the initial investment is fully recovered.
- The shorter the payback period, the more liquid the project is considered to be, as it indicates a faster return of the initial investment.
Advantages:
- Easy to understand and calculate.
- Provides a quick assessment of liquidity and risk.
- Helps in decision-making for projects with short-term liquidity concerns.
Limitations:
- Ignores cash flows beyond the payback period.
- Does not consider the time value of money.
- May lead to overlooking profitable projects with longer payback periods.
In conclusion, the payback period method is a simple and effective way to assess the liquidity of a project by focusing on how quickly the initial investment can be recovered. It is a valuable tool for companies looking to prioritize short-term liquidity in their capital budgeting decisions.
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Which method of capital budgeting focuses on liquidity of a project?a)...
Capital budgeting is the process that a business uses to determine which proposed fixed asset purchases it should accept, and which should be declined. There are different methods adopted for capital budgeting.
Payback period method of capital budgeting focuses on liquidity of a project. This method refers to the period in which the proposal will generate cash to recover the initial investment made. It purely emphasises on the cash inflows, economic life of the project and the investment made in the project, with no consideration to time value of money. Through this method selection of a proposal is based on the earning capacity of the project.
Payback period method of capital budgeting focuses on liquidity of a project. This method refers to the period in which the proposal will generate cash to recover the initial investment made. It purely emphasises on the cash inflows, economic life of the project and the investment made in the project, with no consideration to time value of money. Through this method selection of a proposal is based on the earning capacity of the project.
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Which method of capital budgeting focuses on liquidity of a project?a)Net present valueb)Profitability indexc)Payback periodd)Internal rate of returnsCorrect answer is option 'C'. Can you explain this answer?
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Which method of capital budgeting focuses on liquidity of a project?a)Net present valueb)Profitability indexc)Payback periodd)Internal rate of returnsCorrect answer is option 'C'. Can you explain this answer? for UGC NET 2025 is part of UGC NET preparation. The Question and answers have been prepared according to the UGC NET exam syllabus. Information about Which method of capital budgeting focuses on liquidity of a project?a)Net present valueb)Profitability indexc)Payback periodd)Internal rate of returnsCorrect answer is option 'C'. Can you explain this answer? covers all topics & solutions for UGC NET 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Which method of capital budgeting focuses on liquidity of a project?a)Net present valueb)Profitability indexc)Payback periodd)Internal rate of returnsCorrect answer is option 'C'. Can you explain this answer?.
Which method of capital budgeting focuses on liquidity of a project?a)Net present valueb)Profitability indexc)Payback periodd)Internal rate of returnsCorrect answer is option 'C'. Can you explain this answer? for UGC NET 2025 is part of UGC NET preparation. The Question and answers have been prepared according to the UGC NET exam syllabus. Information about Which method of capital budgeting focuses on liquidity of a project?a)Net present valueb)Profitability indexc)Payback periodd)Internal rate of returnsCorrect answer is option 'C'. Can you explain this answer? covers all topics & solutions for UGC NET 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Which method of capital budgeting focuses on liquidity of a project?a)Net present valueb)Profitability indexc)Payback periodd)Internal rate of returnsCorrect answer is option 'C'. Can you explain this answer?.
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