Why do you think business schools historically have mainly taught NPV even though IRR has been shown to be more popular?
NPV is best method because it gives
accurate results in independent s well as mutually exclusive
projects, includes time value, calculates for the entire project.
The discount rate is WACC which can be practically calculated
through capital structure of the firm.
There are certain disadvantages of IRR which are overcome by
NPV
Disadvantagesof IRR
1. Is not good for acceptability with large scale projects where it
might be rejected when comparing with small scale project if IRR is
higher.
2. IRR and NPV may conflict in certain case where NPV rule
Prevails.
3. IRR rate is higher than WACC generally so reinvestment as higher
than WACC may not be possible always.
4. It gives multiple IRR when have more than one negative cash
flows occur in the project
NPV strengths:
1.It factors in time value of money
2. It includes risk involves in generating cash flow/.
3. It is good in evaluating project involving large investment is
of large scale projects.
4. Here reinvestment rate is discount rate or WACC which is lower
than IRR.
5. It helps in ranking between projects.
Why do you think business schools historically have mainly taught NPV even though IRR has been...
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