Which of the following statements is true with regard to capital budgeting?

The annual rate of return method estimates profitability by dividing expected annual net income by the average investment. It is an accounting-based capital budgeting technique and does not directly consider the time value of money. Option A is incorrect because a proposal is normally acceptable under net present value when NPV is positive, not negative. Option B incorrectly describes internal rate of return; IRR is the discount rate at which the present value of cash inflows equals the present value of cash outflows. Option C is incorrect because the payback method measures how long it takes to recover the original investment, not the investment plus expected return. Internal auditors should understand capital budgeting methods when reviewing investment decisions. Therefore, Option D is correct.