Different investment decision rules bring different advantages and disadvantages

Question

Different investment decision rules bring different advantages and disadvantages, and a good analysis will generally incorporate multiple methods. The two most commonly used decision analysis rules are net present value (NPV) and internal rate of return (IRR). Each has advantages and disadvantages.___________ is ideal if the firm has access to capital and works on all types of projects, while ___________ is useful if projects are not being compared to each other, and there is at least one sign change (positive to negative or vice versa) in the cash flows.

Select one:

a. NPV; IRR

b. IRR; NPV

c. It doesn’t matter.

d. Neither A or B.

Explanation / Answer

NPV , IRR

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