Describe the internal rate of return criterion and its strengths and weaknesses.

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Capital Budgeting

After completing this module, you will be able to do the following:

  1. Outline the facts of the payback rule and some of its shortcomings.
  2. Accounting rates of return and some of the problems with them.
  3. Describe the internal rate of return criterion and its strengths and weaknesses.
  4. Recognize why the net present value criterion is the best way to evaluate proposed investments.
  5. Calculate the profitability index and understand its relation to net present value.
  6. Interpreting how to determine the relevant cash flows for a proposed investment
  7. Understand how to analyze a project’s projected cash flows.
  8. Practice how to evaluate an estimated NPV