Business Studies · Financial Management

Evaluate the following three statements: Statement 1: The Net Present Value (NPV) method is considered theoretically superior to the Payback Period and Accounting Rate of Return because it accounts for the time value of money by discounting future cash flows. However, it does not provide a relative measure of efficiency and is highly sensitive to the chosen discount rate. Statement 2: The Internal Rate of Return (IRR) is the discount rate that equates the present value of cash inflows to the initial cash outflow. It suffers from the reinvestment rate assumption flaw and can yield multiple IRRs for non-conventional cash flows. Statement 3: In appraisal of a term loan, the Debt Service Coverage Ratio (DSCR) measures the adequacy of cash accruals to meet debt obligations. A DSCR of 1.5 indicates that the project generates 50% more cash flow than required. Depreciation is added back because it is a non-cash charge. Which of the following evaluations is entirely accurate?