Both Net Present Value and the Internal Rate of Return

question 95

Essay

Both net present value and the internal rate of return incorporate the same data and utilize the same time value of money theory in their computations. Given this, why is net present value considered to be a superior measure when making capital budgeting decisions?

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Definitions:

Normative Transition

Socially expected changes made by all or most members of a defined population.

Maturation

The process of development in which an individual matures or reaches a full or advanced stage of physical and emotional growth.

Birth Cohort

A group of people who were born during the same period of one or several years and who are, therefore, all exposed to particular historical events at approximately the same age.

Fixed Ratio

In operant conditioning, a schedule of reinforcement where a response is rewarded after a set number of responses.