Briefly explain the various methods of ranking
investment proposals
Answers
Answer:
Several methods are commonly used to rank investment proposals, including NPV, IRR, PI, payback period, and ARR.
The higher the NPV, the more attractive the investment proposal.
The higher a project's IRR, the more desirable it is to undertake the project.
Explanation:
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The Methods of Ranking Proposals are :
☆ Degree of Urgency Method : It is subjective method of ranking the projects. Some projects are needed at one while some others may be postponed to future.
☆ First Year’s Performance : According to this method, the investment projects are evaluated on the basis of their impact on revenues and expenses in the first year.
☆ Payback Period Method : This method is popularly known as pay off, pay-out, recoupment period method also. It gives the number of years in which the total investment in a particular capital expenditure pays back itself .
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