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Three distinct capital budgeting tools are referred to including NPV, payback and IRR, but all three...

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Finance

Three distinct capital budgeting tools are referred to includingNPV, payback and IRR, but all three need to be used simultaneouslyas the advantages of one are disadvantages to the other.

What are the advantages and disadvantages of each of the capitalbudgeting tools?

Why would they all need to be used simultaneously?

Answer & Explanation Solved by verified expert
4.0 Ratings (494 Votes)
1Net Present Value NPV Advantages It take into account time value of money Cost of capital and risks are considered in determining discount rate Cash flows are used instead of accounting income All relevant cash flows throughout project life are considered in NPV calculation It can handle cash flows with any number of change of signs Disadvantages Calculations are    See Answer
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Three distinct capital budgeting tools are referred to includingNPV, payback and IRR, but all three need to be used simultaneouslyas the advantages of one are disadvantages to the other.What are the advantages and disadvantages of each of the capitalbudgeting tools?Why would they all need to be used simultaneously?

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