Why is the NPV considered to be theoretically superior to all other capital budgeting techniques? Reconcile this result with the prevalence of the use of IRR in practice. How would you respond to your CFO if she instructed you to use the IRR technique to make capital budgeting decisions on projects with cash flow streams that alternate between inflows and outflows?
Answer to relevant QuestionsOutline the differences between NPV, IRR, and PI. What are the advantages and disadvantages of each technique? Do they agree with regard to simple accept or reject decisions? Calculate the net present value (NPV) for the following 20-year projects. Comment on the acceptability of each. Assume that the firm has an opportunity cost of 14%. a. Initial cash outlay is $15,000; cash inflows are $13,000 ...William Industries is attempting to choose the better of two mutually exclusive projects for expanding the firm’s production capacity. The relevant cash flows for the projects are shown in the following table. The firm’s ...Reynolds Enterprises is attempting to evaluate the feasibility of investing $85,000, CF0, in a machine having a 5-year life. The firm has estimated the cash inflows associated with the proposal as shown below. The firm has a ...In what sense does an increase in accounts payable represent a cash inflow?
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