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:

Manufacturing Overhead

This includes all indirect manufacturing costs that cannot be directly attributed to specific units produced, such as utilities or salaries for factory supervisors.

Work In Process

A phase in manufacturing where items are partially completed but not yet ready for sale.

Job Cost Sheet

A form that records the direct materials, direct labor, and manufacturing overhead cost charged to a job.

Fire Insurance

A type of property insurance that covers damage and losses caused by fire.