Question

Pyramid Printing Company’s Controller, Sally Sound, and the Production Manager, Darrell Dailey, once again discuss potential operational improvements. After successfully implementing JIT and subletting the warehouse space, Pyramid was flush with cash. As a result, Darrell inquired whether it was time to purchase another press. Henry Hines, Pyramid Printing’s Sales Manager, suggested that the market be tested to ensure the press would be full in terms of capacity prior to use.

Sally and Darrell then discuss their choice of decision model; Sally prefers net present value, and Darrell prefers internal rate of return. Consider the use of these models. Which model is better for use? Are there circumstances one must consider regarding the outcomes of these two decision models? Do these models both deliver the same level of accuracy for decision making?

Answer 1

NPV stands for net present value where the value of the assets is determined whereas IRR stands for internal rate of return where it calculates the internal rate of return now the question is which is better according to the research conducted by many of the institutions it proofs that NPV is the better approach as it is better understandable and easily acceptable

In many circumstances we must consider NPV as a better model when compared to the IRR as it deliver the same level of accuracy for decision making