Pros and Cons of IRR, NPV, and Payback Method
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Evaluating NPV vs. IRR vs. Payback period
Provide debate points for the pros and cons of each of the methods of evaluating projects. First identify each of the three methods then offer your thoughts on pros and cons.
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Solution Summary
This question includes an explanation of the capital budgeting techniques of the internal rate of return (IRR), the net present value (NPV) and the payback method. These 3 methods are explained and evaluate in terms of their strengths and weaknesses. The strenghts and weaknesses of these methods present some points for comparison between them and how they can be used optimally by an organization.
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I have copied and pasted my answers below as well as attached them as a Microsoft Word document. Best of luck.
Net Present Value (NPV)
? The net present value is equal to the sum of the present value of all future after-tax cash inflows generated by a project or investment minus the initial cost of the project or initial amount of money invested
? Present values are calculated using the rate of return required by the company that is considering the project/investment
? An advantage is that the NPV calculation takes into consideration the time value of money
? Another advantage is that the NPV calculation assumes that cash inflows are reinvested at the company's cost of ...
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