Question

explain net present value relative to the internal rate of return is superior measure in project valuation

Answer 1

Net present value is superior measure because net present value will be using the reinvestment rate which is close to its current cost of capital where as internal rate of return will lack from implementation of reinvestment rate as it will be using the same discounting rate which will not be closer to the cost of capital.

it is often advocated that when you are evaluating mutually exclusive project then you should always be adopting net present value method over internal rate of return .

Internal rate of return generally does not discount the changing environment with the changing discounting rate so it is not an appropriate method in recognition of mutually exclusive projects where as Net presentpresent value will be considering the reinvestment rate which will be closer to its cost of capital so it is a more practical approach.