Question #6359

Which of the following statements is CORRECT?
a. The internal rate of return method (IRR) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.
b. The payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects.
c. The discounted payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects.
d. The net present value method (NPV) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.
e. The modified internal rate of return method (MIRR) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.

Expert's answer

The net present value method (NPV) is generally regarded by academics as being the best single method for evaluating capital budgeting projects is CORRECT

statement. Other methods have some defects, for instance, the internal rate of

return method (IRR) assumes that the cash flows to be received from a project can be reinvested at the IRR itself,

and that assumption is often not valid. The payback method has come under criticism for its inability to consider all the project's flows in a present

valued context.

statement. Other methods have some defects, for instance, the internal rate of

return method (IRR) assumes that the cash flows to be received from a project can be reinvested at the IRR itself,

and that assumption is often not valid. The payback method has come under criticism for its inability to consider all the project's flows in a present

valued context.

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