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NPV superior to all other capital budgeting techniques

Why is the N.P.V. considered to be theoretically superior to all other capital budgeting techniques? Reconcile this reasoning with the prevalence in practice of using the I.R.R. How would you respond to your C.F.O. if she instructed you to use the I.R.R. technique to make capital budgeting decisions on projects with cash flow streams that alternate between inflows and outflows?

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NPV is considered superior to IRR, and payback, the other two popular capital budgeting techniques, because it is the most complete picture of future cash flows. It includes all the cash flows, using a reasonable discount rate, and represents the value of the project in dollars, rather than percent (IRR) or years (payback). It is ultimately the dollars of profits that help decision makers ...

Solution Summary

Your tutorial is 248 words and discusses NPV, IRR, MIRR and payback.

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