The net present value method is a better method of evaluation than the internal rate of return method because:

Question

Quizplus · Accepted Answer

The NPV method discounts cash flows at the firm's more conservative cost of capital, which takes into account the riskiness of the project. This is a more accurate method of evaluating the profitability of an investment compared to the internal rate of return method, which only considers the time value of money and may not take into account the riskiness of the investment. Accruals and other accounting discounts are not relevant to the comparison between NPV and IRR methods.

The Net Present Value Method Is a Better Method of Evaluation