Answer to Question #119728 in Accounting for Saumya agrawal

Question

For most investment decisions that a firm faces, npv is either a superior decision criterion or atleast it is considered a good technique to decide for the investment. "what is your considerations? Do you think other techniques can also provide better results while taking investment decisions? If yes, please elaborate

Answer 1

Net present value method is considered superior because the method uses a reinvestment rate close to its current cost of capital, the reinvestment assumptions of the NPV method are more realistic than those associated with the other methods such as IRR method.Net present value also has an advantage over other methods when a project has non-normal cash flows.