Crosswords1 min ago
Finance
3 Answers
The selection method most consistent with the goal of shareholder maximization would be:
A. payback method
B. IRR
C. NPV
D. both IRR and NPV
A. payback method
B. IRR
C. NPV
D. both IRR and NPV
Answers
Best Answer
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For more on marking an answer as the "Best Answer", please visit our FAQ.If you are looking at it from the company's perspective, as abasis of evaluating projects teh NPV method is generally regarded as the most reliable.
Here is an extract from a paper on this site:
http://www.mech.uwa.edu.au/courses/ESD410/Proj ect%20Evaluation.pdf
"2. APPRAISAL OF THE METHODS OF PROJECT EVALUATION
The objective of a company is to maximise shareholders' wealth. Projects should be accepted if they result in increasing shareholders' wealth. Other things being equal,
this will occur where a project generates more cash than less cash and generates cash sooner than later.
Accounting rate of return and payback method can give results which would not maximise shareholder's wealth. The Discounted Cash Flow Methods are more
reliable.
Of the two Discounted Cash Flow Methods - IRR and NPV, do they always give same answer to a particular problem ?
Under certain conditions, NPV and IRR methods of analysis may give conflicting decisions. For all practical purposes, the method which yields consistent decisions
(maximising shareholder's wealth) is the NPV method."
Here is an extract from a paper on this site:
http://www.mech.uwa.edu.au/courses/ESD410/Proj ect%20Evaluation.pdf
"2. APPRAISAL OF THE METHODS OF PROJECT EVALUATION
The objective of a company is to maximise shareholders' wealth. Projects should be accepted if they result in increasing shareholders' wealth. Other things being equal,
this will occur where a project generates more cash than less cash and generates cash sooner than later.
Accounting rate of return and payback method can give results which would not maximise shareholder's wealth. The Discounted Cash Flow Methods are more
reliable.
Of the two Discounted Cash Flow Methods - IRR and NPV, do they always give same answer to a particular problem ?
Under certain conditions, NPV and IRR methods of analysis may give conflicting decisions. For all practical purposes, the method which yields consistent decisions
(maximising shareholder's wealth) is the NPV method."