REPLY TO CLASSMATES POST WK5

Chapter 8 DB Topic #5 (2 original replies only)

Why isn't accounting net income used in the net present value and internal rate of return methods of making capital budgeting decisions?

Lindsey Blanford

Lindsey Blanford

Mon at 10:01 PM

The main reason why accounting net income isn’t used in net present value and internal rate of return methods of making capital budgeting decisions is because accounting net income uses accruals to develope its information rather than cash flows. On the other hand, internal rate of return methods and net present value, focus on and use cash flows to determine their information. Because of this important difference, accounting net income will never be used in reference to net present value and internal rate of return of return methods.