Which of the following correctly orders the investment rules of average accounting return (AAR), internal rate of return (IRR), and net present value (NPV) from the most desirable to the least desirable?
A) AAR, IRR, NPV.
B) AAR, NPV, IRR.
C) IRR, AAR, NPV.
D) NPV, AAR, IRR.
E) NPV, IRR, AAR.

Question

Quizplus · Accepted Answer

NPV is generally considered the most reliable method because it accounts for the time value of money and provides a direct estimate of the added value from an investment. IRR is next, as it also considers the time value of money but can be misleading for non-conventional cash flows or multiple IRRs. AAR is the least desirable because it does not account for the time value of money and is based on accounting profits rather than cash flows.

Which of the Following Correctly Orders the Investment Rules of Average