Deciding between Projects - Essay Example

Dranks first for selection and must be selected over other projects. b) The payback period method does not incorporate the time value of money. It does not include the cash flows of a project after the payback period. c) The payback period is simple and easy to comprehend.2. Internal Rate of Return (IRR): a) Based on the IRR, project A should be taken because it contains the highest IRR.b) It is usually difficult to choose between mutually exclusive projects using the IRR method because the highest IRR may be inapplicable. c) IRR ignores the amount of capital invested, the size of the project and gives no information about the percentage return on investment.d) No, setting no project size limit will mean that no project is selected following the fact that project B has an IRR lower than the project’s cost of capital, which is at 10 percent.

IRR selection rule states that projects should be selected when their IRR is greater than their cost of capital. Consequently, project B is rejected.