Reference no: EM133000908

Question - Net present value and the Internal rate of return are two major techniques used to assess capital budgeting. Both techniques assess the variance in rate of return between each capital's cash flows. Sue Connaughton explains the internal rate of return...which is sometimes called "economic rate of return," as the "discount rate that renders the NPV of all cash flows for a specific project equal to zero" (Connaughton, 2021). In other words, the internal rate of return equates the present value of the investment to its cash flows to zero. It is still an important topic to discuss as to which technique is more efficient.

As a finance leader, which technique will you prefer to use? Will you expect a different rate of return from using NPV or IRR?

Reference - Connaughton, S. A. (2021). Capital Budgeting. Salem Press Encyclopedia.