Accounting › Section X · Capital budgeting decisions › Topic X.5
Comparing capital budgeting methods
Payback, ARR, NPV and IRR often agree, and the interesting cases are when they do not. Knowing what each method measures tells you which one to trust when two good projects compete, when the budget runs short, or when the cash flows take an unusual shape.
In this topic
- Four methods, four questions
- Worked example: one pair, four methods
- Why the rankings conflict
- Worked example: settling it with the increment
- Worked example: a limited budget
- Payback and ARR: strengths and weaknesses
- NPV, IRR and PI: strengths and weaknesses
- When IRR breaks down
- Methods in practice
- Common mistakes to avoid
- Key takeaways
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