Which of the following statements is CORRECT? (Points : 0.41) The internal rate

Question

           Which of the following statements is CORRECT? (Points : 0.41)        The internal rate of return method (IRR) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.
       The payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects.
       The discounted payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects.
       The net present value method (NPV) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.
       The modified internal rate of return method (MIRR) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.

Explanation / Answer

Net present value = Present value of cash inflows-Present value of cash outflows

While evaluating projects, major importance was given to NPV. If the NPV is positive, project will be accepted and rejected in negative. Even though, IRR was lower projects with higher NPV will be selected.

Project with higher NPV will increase the firm value.

Hence, correct option is The net present value method (NPV) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.

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