With the improvement in the technology and understanding of discounting techniques, both the net present value (NPV) technique and internal rate of return (IRR) technique used in capital budgeting analyses have become more popular because these techniques provide decisions that help the firm to _____.

Question

Quizplus · Accepted Answer

Both NPV and IRR techniques provide decisions that help maximize the value of the firm. The NPV technique calculates the present value of expected cash flows and subtracts the initial investment to determine the net present value, while the IRR technique calculates the discount rate that equates the present value of cash inflows to the initial investment. Both techniques consider the time value of money and provide a measure of profitability that helps firms make decisions that maximize their value.

With the Improvement in the Technology and Understanding of Discounting