The two methods that use present value to analyse capital investment proposals are net present value and .

Question

Quizplus · Accepted Answer

Net present value (NPV) and internal rate of return (IRR) are two of the most popular and widely used methods for evaluating the financial feasibility of capital investment projects. NPV calculates the total present value of future cash flows, while IRR calculates the discount rate at which the present value of future cash inflows equals the initial investment. Both methods take into account the time value of money and provide a measure of the profitability and risk associated with the investment project. However, IRR is considered to be a better choice than NPV because it not only measures the absolute value of the investment but also provides a rate of return that can be easily compared to the cost of capital or other investment opportunities.

The Two Methods That Use Present Value to Analyse Capital