Investment Appraisals Essay

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Advantages And Disadvantages Of Net Present Value (NPV)
Advantages Of Net Present Value (NPV)

1. NPV gives important to the time value of money.
2.In the calculation of NPV, both after cash flow and before cash flow over the life span of the project are considered.
3. Profitability and risk of the projects are given high priority.
4. NPV helps in maximizing the firm's value.

Disadvantages Of Net Present Value (NPV)

1. NPV is difficult to use.
2. NPV can not give accurate decision if the amount of investment of mutually exclusive projects are not equal.
3. It is difficult to calculate the appropriate discount rate.
4. NPV may not give correct decision when the projects are of unequal life.
Advanyages And Disadvantages Of Pay Back Period(PBP)
Advantages Of Pay Back Period (PBP)

1. Pay back period is simple and easy to understand and compute.
2. Pay back period is universally used and easy to understand.
3. Pay back period gives more importance on liquidity for making decision about the investment proposals.
4. Pay back period deals with risk. The project with a shortest PBP has less risk than with the project with longest PBP.
5. The short term approach of pay back period is an added advantage of calculation of capital expenditure.

Disadvantages Of Pay Back Period (PBP)
1. In the calculation of pay back period, time value of money is not recognized.
2. Pay back period gives high emphasis on liquidity and ignores profitability.
3. Only cash flow before the pay back period is considered. Cash flow occurred after the PBPis not considered.

Advantages of IRR:

• The IRR method is very clear and easy to understand. An investment is considered acceptable if its

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