Identify one primary strength and one primary weakness for each of the following

Question

Identify one primary strength and one primary weakness for each of the following methods of investment analysis: a.) net present value b.) internal rate of return c.) payback Identify one primary strength and one primary weakness for each of the following methods of investment analysis: a.) net present value b.) internal rate of return c.) payback Identify one primary strength and one primary weakness for each of the following methods of investment analysis: a.) net present value b.) internal rate of return c.) payback

Explanation / Answer

Strength Weakness Internal rate of return Easy to understand rate, same decision as net present value for independent investments Cannot be used with mutually exclusive projects, must be modified for unconventional cash flows Profitability index Used to rank positive net present value projects when there are more acceptable projects than there is money to finance those projects Cannot be used with mutually exclusive projects Payback Easy to compute Short-term bias, ignores some cash flows, ignores time value of money, arbitrary cutoff

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