‘Value-additivity principle’ implies in which one of the following methods of capital budgeting?

The correct answer is NPV method.

Key Points

• The "Value-additivity principle" is associated with the Net Present Value (NPV) method of capital budgeting.
• The NPV method is a widely used technique to evaluate investment projects by comparing the present value of expected cash inflows with the present value of cash outflows. The value-additivity principle states that the NPV of a project is the sum of the NPVs of its individual cash flows.
• According to the value-additivity principle, the NPV of a project can be calculated by discounting each cash flow separately and then summing up the present values. By doing so, the NPV takes into account the time value of money and reflects the incremental value created by the project over its life.
• The value-additivity principle is a fundamental concept in capital budgeting, as it allows for the evaluation and comparison of different investment opportunities. It provides a systematic and comprehensive approach to assess the profitability and feasibility of investment projects. By considering the present value of each cash flow separately, the value-additivity principle ensures a more accurate representation of the project's net value to the company.
• In summary, the value-additivity principle is a guiding principle in the Net Present Value (NPV) method of capital budgeting, which helps businesses make informed decisions about investments and allocate resources effectively.

Hence, the correct answer is NPV Method.