Discussion Question 3

Discussion Question:

In Chapter 9, we have explored a variety of capital budgeting methods, such as payback period, discounted payback period, net present value (NPV) and internal rate of return (IRR). Among them, NPV and IRR are two of the most commonly used methods by businesses for evaluating an investment project (see Table 9.5 in the required text). Please discuss the following questions:

1. Briefly discuss and comment on some of the advantages and shortcomings of NPV and IRR.

2. Suppose you operate a small business and you have limited resources to invest in expanding business, will NPV or IRR be used in your capital budgeting? Please also provide reasons for your answer.