There is an inconsistency between using the NPV method as best for capital budgeting decisions and then using a different method to evaluate performance.

Question

Quizplus · Accepted Answer

If we believe that NPV is the best method for making capital budgeting decisions, it is important to use the same method when evaluating performance. If we use a different method, such as payback period or internal rate of return, we may make decisions that are not consistent with our original investment decision. This can lead to suboptimal outcomes and a misalignment between investment decisions and performance evaluations.

There Is an Inconsistency Between Using the NPV Method as Best