Homework Answers
Net present value or NPV is the better measure of capital
budgeting because:
It considers the time value of money
If the NPV is positive, it shows by how much amount a project or
investment will increase the shareholders' wealth.
Decision rule for IRR and NPV:
IRR decision rule: If the IRR of a project is greater than the cost
of capital then the project should be accepted
NPV decision rule: Any project with positive NPV can be accepted,
if we have multiple projects, and we can select only one then we
need to select the project with higher value of NPV
Please let me know if you have any doubts regarding the answer.
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