Question

In your homework for Chapter 9, you used the following techniques for analyzing projects:

Payback Rule

Discounted Payback Period

Net Present Value

Internal Rate of Return

Why must corporate managers use multiple techniques of project evaluation? Which technique is most commonly used and why? Describe several ways you may be able to use the techniques above as you progress in your professional career. (Identify specific types of projects you could analyze and discuss the advantages and disadvantages of using the techniques learned in this chapter.)

Answer 1

Corporate managers should check the feasibility of the project using various above mentioned methods. Each method has its own merits and limitations .

Net present value method is most commonly used as it is easy to understand and calculate . Also it tells how much the new project is going to add value to the firm in absolute terms. Which is something easy to comprehend.

These methods can be used in following situations :

1. Analyzing decision of replacement of machine

2. Analyzing decision of taking new project

3. Analyzing the decision of increasing the production

4. Analyzing the benefits and costs of establishing new pollution emitting equipment.

Thus these mehtod are statistical tools which helps managers to take valid and firm decisions .