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Requires an arbitrary acceptance criteria
e. A project accepted based on the payback criteria may not have a positive NPV
2. The quantative methods we will use to see what projects to undertake are: NPV, IRR, incremental IRR and PI.
-NPV is the best quantitative ranking method because:
• Accepting positive NPV projects benefits shareholders.
? NPV uses cash flows
? NPV uses all the cash flows of the project
? NPV discounts the cash flows properly
• Reinvestment assumption: the NPV rule assumes that all cash flows can be reinvested at the discount rate.
3- It differs from the payback method...
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