what is the difference between npv and irr method of capital
budgeting and which one is better?
Answers were Sorted based on User's Feedback
Answer / mahesh kumar bagarti
NPV stands for net present value where as I.R.R stands for
internal rate of return.N.P.V is the difference between
present value of cash inflow and present value of cash outflow
or initial investment.I.R.R is the rate that equates present
value of cash inflow with cash outflow.N.P.V is better
because it takes into consideration the time value of money.
|Is This Answer Correct ?||56 Yes||24 No|
Answer / rahul singh lamba
IRR measures the 'max return potential' implied in a
project without considering funding costs (hence the
term 'Internal'). While it is a useful guideline, it fails
in comparison to NPV as the latter incorporates funding
costs as well. NPV will be turn positive only when the IRR
> WACC! Secondly, IRR (the same as CAGR) assumes that the
reinvestment rate of returns is the same as the IRR itself
(that is, it involves circularity. The very reason why we
start with arbitrary numbers to derive the answer when
doing manual calculations).
In general, the order of preference should be NPV >> MIRR
Read this article for more
|Is This Answer Correct ?||17 Yes||2 No|
Answer / mayank
NPV and iRR are the capital budgetin technique which are
used to determine wheather a firms long term investment
decision is correct or not.
using net present value mathod we can calculate the
presrent value of all the future cash generated due to the
investment, adding those casf flow andthen subtracting the
aggregated amount from the initial investment we can
calculate the npv of that project if the npv is positive
then project is good for investment, vicaversa
internal rate of return is calculated when NPV is zero, it
is a rate which determine the growth rate due to the
|Is This Answer Correct ?||4 Yes||15 No|
Answer / sidda uday bhaskar rao
Above answer is correct but NPV meaning sum of total
present values of future cash inflows and total present
|Is This Answer Correct ?||8 Yes||20 No|
Answer / sheetal kumar garg
NPV MEANS NET PRESENT VALUE AND IRR MEANS INTERNAL RATE OF
RETURN BUT NPV IS BETTER THAN IRR.BECAUSE NPV IS SUM OF
CASH INFLOW AND CASH OUT FLOW.
|Is This Answer Correct ?||5 Yes||19 No|
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