We have learned about net present value, annual worth, internal rate of return (

Question

We have learned about net present value, annual worth, internal rate of return (IRR), and roof problems. Which of these measures is the best for comparing decision outcomes? Why? We have learned about net present value, annual worth, internal rate of return (IRR), and roof problems. Which of these measures is the best for comparing decision outcomes? Why? We have learned about net present value, annual worth, internal rate of return (IRR), and roof problems. Which of these measures is the best for comparing decision outcomes? Why?

Explanation / Answer

IRR is not the best one as it works with one single discount rate shich is not the condition sometimes i.e. the discount rates may vary. And second problem is that sometimes discount rates are not known, and in IRR method discount rates are necessary to compare.

Annual worth gives nearly the same results but most of the times it is complicated to calculate in comparision to NPV

So NPC is normally considered the best approach by most decision makers.

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