Discuss the similarities and difference between net present value, payback method, internal rate of return, and...

Discuss the similarities and difference between net present value, payback method, internal rate of return, and average accounting rate of return. Describe each of these and provide unique examples of each one.

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Expert Solution

Difference:

Net present value is the value of the cash inflow or outflow which happen in the future is discounted to the net preset value.It can be positive, negative or may be zero.

While payback method is to detemine that how much time any cash outflow to get recover back of the expected future cash inflow. It is always be in years and cann't be negative.

Internal rate of return is discount rate that pushes the difference between the present value of cash inflows and present value of cash outflows to zero. It is always be in percentage.

Average accounting rate of return is compares the average annual returns of an investment against its average net book value. it is always calculated in percentage.

Similarities:

The similarities of NPV, payback period method, IRR and ARR will always be take the account the time value of money concept. Also, from all the above methods, we can able to calculate the return on investment.

jeff jeffy answered 1 year ago

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