Pros and cons of the commonly used measures (NPV, IRR, PI, MIRR, DPB)

Capital Budgeting, Net Present Value, and other Decision Tools – Write an essay that analyzes the pros

and cons of the commonly used measures ( NPV, IRR, PI, MIRR, DPB) and come to a conclusion based on

the literature that you surveyed as to which methods are theoretically correct and those popular.

Emphasize real-world practices of capital budgeting methods, including project approval processes.

Synthesize the discussions in published research or survey articles.

The paper should: 

• Include a one-page Executive Summary immediately following the title page that includes a statement

of the major issue(s) and your conclusions and specific recommendations. The content of an Executive

Summary is similar to an abstract. 

• Properly cite reference sources: these may include course material, information from magazines,

journals, and online sources. All reference sources must have a publication date within the last three

years. 

Publications that may be relevant for the topics listed below include: Strategic Finance, The Journal of

Business Finance and Accounting, CFO Magazine, Nonprofit World, Harvard Business Review, or other

accounting and financial journals.

The projects that a firm intends to invest in have to be evaluated to determine their

profitability. Capital budgeting is the selection of projects that enhance a firm’s profitability.

Numerous approaches are used to determine the most suitable projects to invest in. These include

the net present value, payback period, accounting rate of return, profitability index, internal rate

of return, discounted payback and modified internal rate of return. This discussion explores the

advantages and disadvantages of the various methods of capital budgeting to determine the most

effective techniques to assess the viability of projects.

Net Present Value

Net Present Value (NPV) is a capital budgeting technique used in determining the current

value of investments. NPV is the difference between the current cash outflow value and cash

inflow value. NPV compares the present and future value of a dollar while taking returns and

inflation into consideration (Chadwell-Hatfield, Goitein, Horvath & Webster, 2011).

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