We can now summarise the arguments in favour of the net present value method of

investment appraisal:
1 The NPV method gives correct advice about mutually exclusive projects.
2 The NPV method can accommodate non-conventional cash flows, when the internal rate of
return method may offer multiple solutions.
3 The reinvestment assumption underlying the NPV method is realistic, but the reinvestment
assumption underlying the internal rate of return method is not.
4 The NPV method can easily incorporate changes in the discount rate, whereas the internal
rate of return method ignores these changes.