Which practice could Excalibur implement to limit the effects of residual values during valuation?

Evaluating the payback period of the acquisition is a practice that could effectively limit the effects of residual values during valuation. By focusing on the payback period, Excalibur can assess how quickly the investment will recover its costs based on cash flows generated by the asset, rather than relying on an uncertain prediction of the asset's value at the end of its useful life.

The payback period approach emphasizes shorter-term cash flow performance and minimizes reliance on terminal values that could vary widely due to changing market conditions or assumptions about residual value. This method can mitigate the issue of residual values, which can often be difficult to predict accurately and may be subject to significant risk.

In contrast, looking at the valuation period or using a higher discount rate might not directly address the concern with residual values but rather focus on different aspects of the valuation process. Ignoring residual values entirely, while it simplifies the model, may not be practical, as residual values typically play a role in determining the overall worth of long-term investments. Focusing on a detailed payback analysis provides a more immediate and reliable understanding of the investment's financial viability.