Question

Where desired rate of return is not known, which method of present value technique is adopted​

Answer 1

Answer:

" If a discount rate is not known, or cannot be applied to a specific project for whatever reason, the IRR is of limited value. In cases like this, the NPV method is superior. If a project's NPV is above zero, then it's considered to be financially worthwhile.

Answer 2

Answer:

The IRR is of little use if a discount rate is unknown or cannot be applied to a particular project for any reason. In situations like this, the NPV approach is preferable.

Explanation:

• A project is deemed financially worthwhile if its NPV is greater than zero.

• The concept of net present value (NPV) is used to calculate the current value of all projected future cash flows, including the initial capital expenditure.
• To determine which projects are most likely to generate the highest profit, it is frequently used in capital budgeting.

Benefits of the NPV approach

The net present value method has the obvious benefit of accounting for the fundamental truth that a dollar now is worth less than one in the future. The cash flows are always discounted by an additional term of capital expense.

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