Time disparity Problem

Time-disparity Problem The mutually exclusive proposals may differ on the basis of the pattern of cash flows generated, although their initial investments may be the same. This may be called the time-disparity problem. The time-disparity problem may be defined as the conflict in ranking of proposals by the NPV and IRR methods which have different patterns of cash inflows. In such a situation like the size-dispa

Incremental Approach

Incremental Approach The conflict between the NPV anti IRR in the above situation can be resolved by modifying the IRR so that it is based on incremental analysis. According to the incremental approach, when the IRR of two mutually exclusive projects whose initial outlays are different exceeds the required rate of return, the lRR of the incremental outlay of the project requiring a bigger initial investment sh

Size disparity Problem

Size-disparity Problem This arises when the initial investment in projects under consideration is, mutually exclusive projects, is-different. The cash outlay of some projects is larger than the others. In such a situation the NPV and IRR will give a different ranking. Finance-Assignments.comInstructions Feel free to send us an inquiry, we reply back real quick. Or directly email us at order@finance-assignmen

NPV and IRR Methods Differences

NPV and IRR Methods: Differences Thus, in the case of independent conventional investments that NPV and IRR methods will give concurrent results. However, in certain situations they will give that, if the NPV method finds one proposal acceptable, IRR favor another. This is so in the case of mutually exclusive investment projects. If there are alternative courses of action. only one can be accepted. Such altern

NPV and IRR Similarities

NPV and IRR Similarities The two methods-IRR and NPV would give consistent results in terms acceptance or rejection of investment proposals in certain situations. That is, if a project is it will be indicated by both the methods. If, however, it does not qualify for acceptance, methods will indicate that it should be rejected. The situations in which the two methods will give a concurrent accept-reject decision


NPV, IRR, PROFITABILITY INDEX METHODS-A COMPARISON NPV vs. IRR Methods The NPV and IRR methods would in certain situations give the same accept reject decision. But y also differ in the sense that the choice of an asset under certain circumstances may be contradictory. The comparison of these methods, therefore, involves a discussion of (i) the similarities between them, and (ii) their differences, as also the f


CAPITAL BUDGETING II: ADDITIONAL ASPECTS INTRODUCTION The simple accept-reject investment decisions with primarily conventional cash flows were in the preceding Chapter. A firm generally faces complex investment situations and has to among alternatives. The valuation techniques discussed earlier can be extended to handle decisions. The focus of this Chapter is on extension of these techniques to complex lent