Explore BrainMass

Net Present Value Analysis vs. Internal Rate of Return vs. Payback Period

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

Discuss the major capital budgeting methods used by corporations to evaluate projects. Why do many corporations continue to use the payback period method? Which method do you prefer? Explain why you prefer this method.

© BrainMass Inc. brainmass.com October 25, 2018, 9:49 am ad1c9bdddf

Solution Preview

NOTE: This guide was not formatted based on any citation style; however, the reference section was according to MLA citation style.
Capital Budgeting Methods
The three most popular capital budgeting methods used by corporations are 1) net present value analysis, 2) payback period, and 3) internal rate of return.
Net present value (NPV) analysis evaluates capital projects based on their net present values which is computed by discounting, using the required rate of return, the project's yearly net cash flows to time = 0. With everything else equal and assuming that the company needs to finance just one project, the project with the highest net present value should be funded.
The payback period, on the other hand, evaluates capital projects based on a ...

Solution Summary

Compares and contrasts net present value analysis, internal rate of return, and payback period in 481 words with a reference.

See Also This Related BrainMass Solution

Bonds, zero coupons, financial analysis, & Net present value

Net present value (NPV ) at 10%, the payback period, ARR, PI and IRR Problems:

How to adjust for the different timing and risk of alternative investments. The net present value (NPV) of an investment is the difference between the present value of its benefits (inflows) and the present value of its costs (outflows).

The attached document has the specific questions.

View Full Posting Details