... of Return (IRR) - The discount rate at which project NPV equals zero. Investment rule - Accept project if IRR is greater than opportunity cost of capital. Comments - Results in same accept/reject decision as NPV in the absence of project interactions. Payback period - Time until sum of project cash flows equals the initial investment. Investment rule - Accept project if payback period is less than some specified number of years. Comments - a quick and dirty rule of thumb, with several critical pitfalls. Ignores cash flows beyond the acceptable payback period. Ignores discounting. Tends to improperly reject long-lived projects. Profitability index - Ratio of Net present value to initial investment. Investment rule - accept project if profitability index is greater than zero. In case of capital rationing, accept projects with highest profitability index. Comments - Results in same accept/reject decision as NPV in the absence of project interactions. ...

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