ABSTRACT
Capital budgeting is one of the most important decisions that face the financial
manager. Prior studies spanning the past four decades show financial managers prefer
methods such as internal rate of return or non-discounted payback models over net
present value; the model academics consider superior. This interesting anomaly has long
been a puzzle to the academic community. A recent survey of the Fortune 1000 Chief
Financial Officers finds net present value to be the most preferred tool over internal rate
of return and all other capital budgeting tools. While most financial managers utilize
multiple tools in the capital budgeting process, these results better reflect the alignment
of the academic and business view.