In actual practice, managers most frequently use which two types of investment criteria?
A) Net present value and payback
B) Average accounting return and internal rate of return
C) Internal rate of return and net present value
D) Internal rate of return and payback
E) Net present value and profitability index

Question

In actual practice, managers most frequently use which two types of investment criteria? 
A) Net present value and payback 
B) Average accounting return and internal rate of return 
C) Internal rate of return and net present value 
D) Internal rate of return and payback 
E) Net present value and profitability index

Quizplus · Accepted Answer

In actual practice, managers most frequently use internal rate of return (IRR) and net present value (NPV) as investment criteria. IRR represents the actual return on the investment, while NPV shows the dollar amount of value created by the investment. These two methods are complementary, as IRR measures the viability of the investment, while NPV measures the profitability of the investment. Therefore, managers usually use both IRR and NPV to evaluate investment opportunities.

In Actual Practice, Managers Most Frequently Use Which Two Types