Suppose a company has five different capital budgeting projects from which to ch

Question

Suppose a company has five different capital budgeting projects from which to choose, but has constrained funds and cannot implement all of the projects. Explain why comparing the projects' NPVs is better than comparing their IRRs. How is the IRR determined if there are uneven cash flows? Why does the failure to consider soft benefits discourage investment

Do you think preferences should enter into the decision? if so how and why? What would a preference be?

Do you think preferences should enter into the decision? if so how and why? What would a preference be?

Explanation / Answer

The project havinh highest net present value must be chosen.

NPV = Cash Inflows- Cash Outflows

The criteria of Net present Value in choosing a projecvt is better than the internal Rate of Return because the at IRR NPV is zero, but if we use NPV then we would be able to get the exact net cash flows from the project hence it is better.

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