Answered: Why do most academics and financial…

Why do most academics and financial executives regard the NPV as being the single best criterion and better than the IRR? Why do companies still calculate IRRs?

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter12: Corporate Valuation And Financial Planning

Section: Chapter Questions

Problem 3Q

See similar textbooks

Related questions

Q: Discuss the implications of the efficient market hypothesis for financial managers and security…

A: An efficient market hypothesis is defined as the hypothesis, which used to state that the share…

Q: Is it feasible for a new company endeavor to be lucrative while also experiencing financial…

A: Introduction: According to Entrepreneur, it takes a minimum of three years for a company to become…

Q: Discuss how the free-rider problem aggravates adverse selection and moral hazard problems in…

A: The adverse selection problem in the security market cannot be completely solved by the system of…

Q: d. Explain why NPV is considered technically superior to Payback and Accounting Rate of Return (ARR)…

A: There are various capital budgeting methods that can be used to assess or evaluate various…

Q: Management has constructed the below table of estimates reflecting the possible returns and…

A: a) Determine the expected value of return for the above company Expected return calculation…

Q: tha

A: A financial forecast gives businesses access to cohesive reports, allowing finance departments to…

Q: What do you see as some of the possible problems if shareholder value is seen as a strategy (and not…

A: Strategy refers to the financial approach for the planning of the functions that are based on a…

Q: What are some advantages and disadvantages of top-down versus bottom-up investing styles?

A: Top-down investing and bottom up investing procedures are the procedures used in different type of…

Q: Are the financial projections realistic and healthy?

A: Estimating things before the real cost and revenue incurred is known as financial estimation.…

Q: Why do you think Dividend Irrelevance theory is unrealistic?

A: The dividend irrelevance theory was proposed by Merton Miller and Franco Modigliani. According to…

Q: Why investors are willing to invest in high-tech firms instead of conventional financial sources?

A: Conventional financing is a scheme related to financing of home that is offered by financial…

Q: Why do you think capital investment decisions are some of the most important decisions that…

A: Capital investment refers to all those activities that a business entity undergoes while allocating…

Q: Do normal valuation metrics work like P/E, P/B etc. tech startups companies like…

A: Startup companies are new age companies that have flourished in the 21st century. These are often…

Q: How behavorial bias affect investment behavior?

A: Behavioral bias is the belief by the investors that unknowingly affects the investors investment…

Q: Do firms have any responsibilities to society at large? ◦Is stock price maximization good or bad…

A: As per our guidelines, we are supposed to answer only 3 sub-parts (if there are multiple sub-parts…

Q: what does it mean if the NPV and IRR are both positive, should the company invest on the project or…

A: Net Present value refers to the present value of future cash flow, which means cash flows generated…

Q: Is it feasible for a new company endeavor to be lucrative while still experiencing financial…

A: Meaning of Lucrative Lucrative which simply describes as brings profitability into the business…

Q: How do managers, bankers, and security analysts use (a) trend analysis, (b) benchmarking,(c) percent…

A: Introduction: Usually a managers, bankers, and security analysts use financial tools and techniques…

Q: b. Discuss why financial analysts prefer the CAPM model over other evaluation models?

A: CAPM is an abbreviation used for Capital Asset Pricing model which is used by investors or portfolio…

Q: Ceteris paribus, current financial market returns will increase as

A: Capital goods are those fixed assets for the company which help in the production process. They are…

Q: Forecasting a firm's future sales is the key element in developing a financial plan, yet forecasting…

A: Financial planning: Financial planning is made to determine for an organization strategic goals and…

Q: Arguments against a robust financial market being the foundation of stable economic growth and…

A: As the name implies, financial markets are a type of marketplace where you may sell and purchase…

Q: The readings for module 3 explain that past performance for a company or stock is not a guarantee of…

A: The earnings of a corporation are the most basic measure of a stock's worth. Because you're buying a…

Q: If the APT is to be a useful theory, the number of systematic factors in the economy must be small.…

A: APT (Arbitrage Pricing Theory) Alternative multi-factor assets pricing theory helps in analyzing the…

Q: How do the FCFE, APV, and corporate valuation approaches differ from one another? How are they…

A: FCFE, APV and corporate valuation all are techniques of valuation on the basis of equity. This…

Q: Why have ETFs grown to become one of the most popular investment products? What are some of the…

A: Exchange traded funds are all such mutual funds which will be traded over the exchanges and they are…

Q: Sensitivity analysis is concerned with determining how much variation in financial data, the…

A: Sensitivity analysis is a monetary model that decides what target factors are meant for dependent…

Q: What is the investment center manager's preferred technique of calculating investment turnover,…

A: It is a unit of a firm that is evaluated based on the usage of its capital rather than the profits…

Q: Do normal valuation metrics work like P/E, P/B etc., in tech companies or do investment bankers…

A: A startup is a firm that is in its early phases of operation. These businesses usually start with…

Q: How does the risk return trade-off relate to the financial manager's main goal?

A: The main goal for a financial manager is to generate the maximum value of the firm to its owners.…

Q: Why does behavioral finance considered investors as "normal" yet biased and errors? Support being…

A: Behavioural Finance is the branch of Behavioural economics that deals with the behavior and…

Q: s it important to identify what costs will be eliminated in the conduct of finan

A: Turnaround recovery ways are a variety of measures that corporations use to get over a amount of a…

Q: How We use quantitative data to manage risk and create investment vehicles

A: We can define risk as the variations in return. While investing in a security, it is very important…

Q: What factors are frequently ignored in financial analysis? Why?

A: Qualitative factors are the factors that deal with an intangible as well as inexact information that…

Q: The DPBP is ideal as a stand-alone measure of economic worth. True or False?

A: Discounted Pay-Back Period or DPBP is period in which discounted value of future cash inflows is…

Q: The PE ratio is a very common method used by investors to get a quick calculation on the market’s…

A: P/E ratio is one of most common methods of valuation of company and P/E ratio compare price of stock…

Q: er confirmatory value?

A: Predictive value : The knowledge has predictive value, which implies it may be utilised to forecast…

Q: Why are statistical approaches and tools important in investment decision-making?

A: This question explains about the statistical approaches and tools that are important in investment…

Question

Why do most academics and financial executives regard the NPV as being the single best criterion and better than the IRR? Why do companies still calculate IRRs?

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Reason of NPV being a single best criterion for capital budgeting decisions:

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

what is the reason why most companies prefer predictive value over confirmatory value?
what if in the future, it will earn a negative RCE. Is this possible for a company? Why?
How do the DuPont technique helps the firm’s managers to further analyze its returns?
What is the difference between future value and present value? Whichapproach is generally preferred by financial managers? Why?
Can you identify a possible explanation for the company’s declining profits? If so, what is it?
What type of question is finding the detail to more clearly understand why net income is decreasing when revenues are increasing? Multiple Choice What happened? What is happening? Why did it happen? What are the root causes of past results? Will it happen in the future? What is the probability something will happen? Is it forecastable? What should we do based on what we expect will happen? What should we do based on what we expect will happen? How do we optimize our performance based on potential constraints?
What can you say about the market value of the company? is it positve or is negative?
As a Businessman and Entrepreneur, which do you think is more important between Return On Asset (ROA) and Return On Investment (ROI)? Choose only one and explain.
FAST What are the main hindrances in valuation estimates in business valuation?
Ceteris paribus, current financial market returns will increase as _____. Group of answer choices a. the uncertainty about the productivity of capital goods increases and people become more risk averse b. the uncertainty about the productivity of capital goods increases and people become less risk averse c. the uncertainty about the productivity of capital goods decreases and people become more risk averse d. the uncertainty about the productivity of capital goods decreases and people become less risk averse
Which of the following is NOT a tool to measure firm performance? O Return on equity. O Economic value. Market capitalization. Firm branding.
If markets are truly efficient, does it matter whether firms engage in earnings management? On the other hand, if firms manage earnings, what does that say about management’s view on efficient markets?