The discounted cash flow methods for capital budgeting are generally considered superior to the payback period and the ARR because they consider the time value of money.

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Discounted cash flow methods, such as net present value and internal rate of return, take into account the principle that money today is worth more than the same amount of money in the future due to inflation and the opportunity cost of waiting for a return. On the other hand, payback period and accounting rate of return do not consider the time value of money and therefore are considered less reliable measures of capital budgeting.

The Discounted Cash Flow Methods for Capital Budgeting Are Generally