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Suppose you are a project manager in a firm. Will you prefer to use NPV or payback method to choose among different projects? Give reasons to support your answer.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 7QTD

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Suppose you are a project manager in a firm. Will you prefer to use NPV or payback method to choose among different projects? Give reasons to support your answer.

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

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