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superiority of cash flow techniques in investment appraisal

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBL Exams › superiority of cash flow techniques in investment appraisal

  • This topic has 1 reply, 2 voices, and was last updated 9 years ago by AvatarKen Garrett.
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  • February 10, 2017 at 10:41 am #371848
    AvatarVipin
    Member
    • Topics: 151
    • Replies: 365
    • ☆☆☆☆

    why is that cash flow techniques like NPV, IRR is considered superior to methods like ARR which considers annual operating profit?

    One reason I could think of is that, a profit can be manipulated by managers.

    February 10, 2017 at 4:12 pm #371866
    AvatarKen Garrett
    Keymaster
    • Topics: 10
    • Replies: 10656
    • ☆☆☆☆☆

    The other main reason is that NPV and IRR take into account the time value of money. That concept is the foundation of discounting.

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