... value the investment will result in. If the Net Present value is a positive amount then the project should be undertaken. When being used to determine which mutually exclusive project to undertake the project with the highest NPV should be chosen. Net Present value is a widely used calculation as it allows for the "time value of money" and allows alternative proposals to be ranked in order of attractiveness. The main disadvantage of NPV is that it requires the company to calculate an interest rate to use when appraising investment opportunities. The interest rate is usually the companies Weighted Average Cost of Capital (WACC). WACC can change and if it does the NPV will have to be re-calculated as the original figure would no longer be valid. Accounting rate of Return When using the ARR for mutually exclusive projects the project with the highest ARR should be chosen. However it should also ...

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