A financial analyst can choose from a variety of capital budgeting methodologies or rules to determine whether a project should be accepted. The payback rule does not take into account the time value of money; NPV and MIRR, on the other hand, take into account the time value of money and all cash flows of a project. Some rules, such as IRR and MIRR, report their answers as percentages, while NPV reports its answer in U.S. dollars. Some analysts may be more comfortable analyzing returns rather than dollars. A financial analyst may decide to use NPV or the regular payback rule for project evaluation purposes.
Among all the capital budgeting methodologies or rules, which would you use and why? What are the advantages of one rule over another? How can a rule be improved to make it more effective?
Justify your answers using examples and reasoning. Comment on the postings of at least two peers and indicate whether you agree or disagree with their views.
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Sep 21, 2019EXPERT
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