Author(s)

Xinyu Wang, Yiyang Wang, Ziyi Wu, Zihan Zhao

Corresponding Author

Yiyang Wang

ABSTRACT

Net present value rule and interest return rate criterion are two important tools when making capital budgeting decisions. This paper would concentrate on the evaluation of the two criteria in order to judge the use of them under different conditions in making investment in the market. A number of real-life examples were researched to find out the distinct features, advantages and disadvantages of the two rules. They were compared in various of aspects to find out the validity of the two objects in different situations. With the analysis, circumstances that are suitable for the application of both net present value rule and interest return rate criterion are discovered separately, and they also have defects that they may not be valid to calculate the profits earned in some situations. To use the two tools in an appropriate way, it is required to make full evaluation to the relevant factors in the environment of the market.

KEYWORDS

NPV Rule, IRR Criterion, environment of the market