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What are your thoughts on why payback and IRR are more frequently used than NPV, when...

What are your thoughts on why payback and IRR are more frequently used than NPV, when evaluating projects?

Which method does your organization prefer?

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Answer #1

Payback period is more frequently used as it is simple and easy to calculate. It gives an idea about the time period within which the firm will earn back the cash outflow or the investment amount.

IRR or internal rate of return is calculated as it helps to know what is the rate of return that can be expected from the inevstment.

NPV or the net present value is not used as the company may not be sure about the rate of return that can be used for calculations.

Our organization uses IRR for evaluating a project.

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