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Forecasting and Valuing Cash Flows: NPV or IRR

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The authors present the merits of capital budgeting model like Net Present Value and Internal Rate of Return. If you are a Budgeteer, which method would you favor and Why?

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This solution contains explanations regarding capital budgeting models, such as net present value and internal rate of return. Relevant references are also included in the solution.

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The authors present the merits of capital budgeting model like Net Present Value and Internal Rate of Return. If you are a Budgeteer, which method would you favor and why?

Capital budgeting involves taking decisions about the long term assets mix of the organization. One uses following tools for analyzing a project:

1) NPV
2) Payback
3) IRR
4) MIRR

NET PRESENT VALUE

The net present value (NPV) method offsets the present value of an investment's cash inflows against the present value of the cash outflows. If a prospective investment has a positive net present value (i.e., the present value of cash inflows exceeds the present value of cash outflows), then it clears the minimum cost of capital and is ...

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