Unformatted text preview: and cash outflows so management can evaluate a project’s benefits and costs at one point in time. NPV is computed by discounting the future net cash flows from the investment at the projects required rate of return and then subtracting the initial amount invested 5. What are the strengths and weaknesses of the 1) payback method, 2) net present value method and 3) internal rate of return method. Payback method ignores time value of money and cash flows after payback period. Net present is difficult to compare dissimilar project. IRR ignores varying risks over life of project. Accounting Rate of Return, ignores time value of money and annual rates over the life of the project....
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- Spring '09
- Net Present Value, real life example, capital budgeting decisions