Strengths and Weaknesses of the Investment Appraisal Techniques Free Essay Example, 1750 words

The net present value method is one of the important discounted cash flow techniques that are commonly adopted by firms for evaluating projects. The primary reason for considering NPV method useful is consideration of time value of money. Among the three projects, it can be observed that each of the projects has positive NPV higher than $900. From a single project s point of view, all three projects are acceptable as they have positive NP but comparatively, the project with highest NPV is preferred. Hence, Florence PLC should invest the fund in Project C (Schall, Sundem and Geijsbeek, 1978). The internal rate of return is another important discounting method which is generally used along with NPV method for evaluating projects. IRR method generally ranks projects based on the amount of return the project is generating internally. There are two key criteria for selecting a project on the basis of IRR. Firstly, the IRR should be higher than the cost of capital of the project and secon dly, IRR is useful in selecting the most desirable project among more than one project. We will write a custom essay sample on Strengths and Weaknesses of the Investment Appraisal Techniques or any topic specifically for you Only $17.96 $11.86/page The primary reason for project A having least payback period is that the project will earn very high inflow during the first three years.