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The NPV rule is the best investment appraisal method.” Discuss
Member rating: No Rating | Words: 1995 | Submitted: Sat Jan 12 2008
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"The NPV rule is the best investment appraisal method." Discuss. Word Count: 1995 words "The NPV rule is the best investment appraisal method." Discuss. All firms need to invest in order to grow. Investments generally require significant and irrevocable commitments of finance, whilst also being generally on a long-term basis. In order to decide on which project to take up, firms must undertake a screening process known as 'investment appraisal' to justify potential suitability. There are four main methods of investment appraisal: the Net Present Value (NPV) rule, the Internal Rate of Return (IRR), the Accounting Rate of Return (ARR), and the Payback Period. The basic characteristics of these four methods will be outlined and then compared. The NPV Rule The NPV rule states that a project should be undertaken should its NPV be positive (Ross et al, 2005). It, like the IRR, is a discounted cash-flow (DCF) model because it takes into account...
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