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The Irr Rule Is Redundant as an Investment Criterion Because the Npv Rule Always Dominates It Essay

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Below is an essay on "The Irr Rule Is Redundant as an Investment Criterion Because the Npv Rule Always Dominates It" from Anti Essays, your source for research papers, essays, and term paper examples.

Chapter 23 : Capital Budgeting Methodology: The Financial ...
Capital Budgeting Methodology: The Financial Analysis Stage
LEARNING OBJECTIVES After studying this chapter, you should be able to:
1. Discuss the discounted cash flow methods, and explain the net present value (NPV), internal rate of return (IRR), and present value index (PVI) methods.
2. Discuss the nondiscounted cash flow methods, which are the payback period (PP) method and the accounting rate of return (ARR) method.
3. Describe the impact of income taxes, purchasing versus leasing, and inflation on capital budgeting financial analysis.
4. Explain how sensitivity analysis assists managers in making capital budgeting decisions.

Introduction
Once the first stage of the capital budgeting methodology (covered in the previous chapter) has linked capital projects with an enterprise's vision and strategy, and estimated the quantity and timing of cash flows, the data are subjected to financial analysis. Using financial analysis methods (the second stage of the capital budgeting methodology), managers evaluate and compare alternative projects included in the Capital Projects Portfolio Statement. Such candidate capital projects will usually differ in the amount of initial investment required, terms of useful life, amount and timing of cash flows, salvage value, and cost of capital.
Two types of capital budgeting financial analysis methods are covered in this chapter:
  * Discounted cash flow methods
  * Nondiscounted cash flow methods .

Discounted Cash Flow Methods
The main methods that managers use to financially analyze capital projects are called discounted cash flow (DCF) methods, which include the following:
  * Net present value (NPV) method
  * Internal rate of return (IRR) method
  * Present value index (PVI) method
These methods rely on the time value of money, a concept that combines two basic principles:
  * A dollar today is worth more than a dollar in the future (the...

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The Irr Rule Is Redundant as an Investment Criterion Because the Npv Rule Always Dominates It. Anti Essays. Retrieved August 14, 2018, from the World Wide Web: https://www.antiessays.com/free-essays/The-Irr-Rule-Is-Redundant-As-587860.html