What is NPV? What is IRR? What is the difference between NPV and IRR metho

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Question

What is NPV? What is IRR? What is the difference between NPV
and IRR method? Which and why among NPV and IRR do you think
is more appropriate technique in capital budgeting?

Question Submitted By :: Vicky

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Re: What is NPV? What is IRR? What is the difference between NPV and IRR method? Which and why among NPV and IRR do you think is more appropriate technique in capital budgeting?

Answer
# 1

NPV is the Net Present Value . It is the summation of 
present values of future cash flows less the present value 
of cash outflow. This method takes into accoutn the time 
value of money. Generally present value of cash outflow is 
determined by multiplying with the discounting factor which 
is the cost of capital of the company. 

IRR is the Internal rate of return . It is the rate at 
which the PV of Inflow is equal to the PV of outflow. 
If IRR is positive then we can go with the project else 
ditch it.

For capital budgeting decisions a mix of techniques is 
used. No single method is accurate enough.

Is This Answer Correct ?

15 Yes

1 No

Manoj

Re: What is NPV? What is IRR? What is the difference between NPV and IRR method? Which and why among NPV and IRR do you think is more appropriate technique in capital budgeting?

Answer
# 2

The NPV is net present value. it place when the cost of
capital is known.


The IRR is internal rate of return. It place when the cost
of capital is unknown.

Is This Answer Correct ?

1 Yes

0 No

Ricky Briones

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