Question

What decision rules are the best/worst? Be able to rank the rules from worst-to-best or best-to-worst.

Answer 1

Answer:

NPV, IRR, payback.

Step-by-step explanation:

The best worst decision technique involves the choice modelling. In terms of the overall usefulness in the capital budgeting decisions,

-- the decision rule that is best is the NPV

-- the decision rule that is worst is payback period

The NPV capital budgeting tool provides accurate results and it also assumes cash flow can be reinvested at a discount rate.

The IRR is the second best budgeting tool where it assumes that the cash flows can be reinvested at IRR.

And the worst is the payback where it does not take into account its time value of the money and so it does not yield the correct as well as accurate results.

Therefore, ranking the rules from best to worst is : NPV, IRR, payback.