Under what circumstances might it be more appropriate to use the net asset value method? Give...

Under what circumstances might it be more appropriate to use the net asset value method? Give one example.

Expert Solution

Circumstances under which net present value method is to be used are as follows-

A. When there are many independent projects with different cash flows and with equal life.

B. When there are mutually exclusive projects with equal life, then also net present value can be adopted.

C. When the reinvestment into project is done at some intervals then net present value is a better method than internal rate of return method.

D. When there is a comparison of different project, which are of equal lives and non-uniform cash flows, then net present value is a better method.

If there are two projects, both of them are making the investments at certain intervals at different reinvestment rates than the net present value method is used and it will be a better method and internal rate of return method because internal rate of return method will not be reinvesting at different rates.

Net present value method is the best method among all the other capital budgeting methods like internal rate of return method, profitability index, discounted payback period method and payback period method.

jeff jeffy answered 2 years ago

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