Answer to Question #245215 in Accounting for virus

Question

Advise NextG's executive committee which project should be undertaken if: the net present value method of investment appraisal is used; [8 marks] ii. the internal rate of return method of investment appraisal is used; [8 marks] b) Critically discuss the reasons for superiority of the net present value method over the other methods. Is the internal rate of return method now redundant?

Answer 1

a) If the net present value method of investment appraisal is used, then we should choose the project with higher positive NPV.

ii. If the internal rate of return method of investment appraisal is used, then we should choose the project with higher IRR.

b) The obvious advantage of the net present value method is that it takes into account the basic idea that a future dollar is worth less than a dollar today. In every period, the cash flows are discounted by another period of capital cost.