Which of the following is a common method used for capital budgeting?

Capital budgeting is an essential process that helps organizations evaluate potential major projects or investments. The Internal Rate of Return (IRR) is widely recognized as a key method in this context. It represents the discount rate at which the net present value (NPV) of future cash flows from an investment equals zero. By using IRR, decision-makers can assess the profitability of a project: if the IRR exceeds the required rate of return, the investment is considered attractive.

This method is particularly effective because it helps compare the desirability of different investment opportunities by providing a single percentage figure that illustrates the potential return. The higher the IRR, the more desirable the investment would be, allowing companies to prioritize capital expenditures based on anticipated return performance.

In contrast, the other options serve different financial analysis purposes. The Debt-to-Asset Ratio measures a firm's leverage and financial stability, while the Gross Profit Margin evaluates a company's operational efficiency and profitability. Finally, the Current Ratio assesses liquidity, indicating a company's short-term financial health. While these metrics are crucial for overall financial analysis, they do not directly address the long-term investment decision-making process that capital budgeting entails, which is why the Internal Rate of Return is considered the most relevant method among the options presented.