Evaluation of Net Present Value and Internal Rate of Return

NPV & IRR

Introduction

When any investment decisions are taking place with the help of discounted cash flow analysis, the difference between the Internal Rate of Return and Net Present Value becomes very difficult to detect. To understand the distinction, you are required to understand the basic concept of the NPV as well as IRR.

Basic Concept

The Net Present Value is the measure which tells the investor about the right investment decision. It determines whether the investments are going in the right track and achieving right goals after a specific period of time. The net present value also helps in quantifying the adjustments done during the initial investments stage for acquiring the desired targets, keeping all the other things as constant. Therefore the NPV can be defined as the summary of cash flows during the holding period and the required rate of return of the investors.

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