Internal Rate of Return (IRR) and Net Present Value (NPV) are both powerful tools used in business to determine whether or not to invest in a particular project; both methods have its pros and cons.
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Pages: 3
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Pages: 3
(approximately 235 words/page)
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Internal Rate of Return (IRR) and Net Present Value (NPV) are both powerful tools used in business to determine whether or not to invest in a particular project; both methods have its pros and cons. If given a choice I would choose NPV, because of the potential to anticipate profitability.
<Tab/>As it is assumed that the objective of a firm is to create as much shareholder wealth as possible for …
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showed first 75 words of 895 total
showed last 75 words of 895 total
…Tab/>Despite the disadvantage discussed above, NPV is the single most valuable of the various methods of capital investment appraisal and the one that should be used as the basis of decision making in this area. It is probably best to see payback as a measure of liquidity than profitability. On that basis the IRR method should only be a preliminary screening device, which is inappropriate as a basis for sophisticated investment decisions.
…Tab/>Despite the disadvantage discussed above, NPV is the single most valuable of the various methods of capital investment appraisal and the one that should be used as the basis of decision making in this area. It is probably best to see payback as a measure of liquidity than profitability. On that basis the IRR method should only be a preliminary screening device, which is inappropriate as a basis for sophisticated investment decisions.
