Respond to statement, do you agree or disagree and why?

After review of the table containing the information about four projects in which XCorporation has the opportunity to invest, I ranked the order of preference using the following table:

	(a) Net Present Value	(b) Profitability Index	(c) Internal Rate of Return	(d) Payback Period	(e) Average Rate of Return
1st preferred	C	A	B	C	D
2nd preferred	B	C	A	A	A
3rd preferred	A	B	C	D	B
4th preferred	D	D	D	B	C

Each capital investment technique has a unique standard and quality of assessing an investment, though there can also be disadvantages to solely utilizing one method. Net present value focuses on the present cash flow values that would be expected from the investment in order to capture the total value of the investment opportunity; a disadvantage is that it would be an estimated guess at the future cost of capital (Warren, 2018). The profitability index, also known as the Profit Investment Ratio (PIR) or the Value Investment Ratio (VIR), is a measurement of the ratio between the investment and the present value of cash flows; a disadvantage to the profitability index is that it requires a cost of capital to calculate (CFI, 2021). The internal rate of return is the calculation in which the expected cash flows of an investment are given, and the net present value equals zero (CFI, 2021). The payback period is the duration of time from which the initial investment is secured, and the complete recovery of the cost of investment occurs (Warren, 2018). "The average rate of return is the average annual amount of cash flow generated over the life of an investment"; the flaw to this being that "it does not take into account the time value of money" (Bragg, 2021, para. 1 & 2). Each capital investment technique allows for evaluating and insight into performance and growth potential.

References

Bragg, S. (2021, April 12). Average rate of return definition. AccountingTools. https://www.accountingtools.com/articles/2017/5/8/average-rate-of-return#:~:text=The%20average%20rate%20of%20return%20is%20the%20average,years%20that%20the%20investment%20is%20expected%20to%20last.

Internal Rate of Return (IRR). Corporate Finance Institute. (2021, March 31). https://corporatefinanceinstitute.com/resources/knowledge/finance/internal-rate-return-irr/

Profitability Index. Corporate Finance Institute. (2021, January 2). https://corporatefinanceinstitute.com/resources/knowledge/accounting/profitability-index/

Warren, C.S. (2018).Survey of accounting(8th ed.).http://www.cengage.com