Answer to Question #17316 in Management for Leigh Lane

Question

3.Create an argument for using Net Present Value (NPV) over the Internal Rate of Return (IRR) when evaluating capital projects

Answer 1

Internal Rate of Return (IRR) and Net Present Value (NPV) are complementary measures of Discounted Cash Flow (DCF). They have essentially equivalent utility. IRR is not inferior to NPV as traditionally claimed. Using both measures gives better results than using either alone. IRR is also useful alone in virtually all time-value-of-money problems. It is not impossible to determine which of index use because they always needs to be used simultaneously