Differentiate between discounted Net present value and Internal rate of return.
The major differences between Net present value and internal rate of return are as follows −
|Net present value||Internal rate of return|
Expressed in absolute terms.
The surplus amount of project.
Helps in decision making.
No effect of Variation in cash outflow.
If NPV is greater than 1 then the project is accepted.
Helps to take constructive investment decisions.
Consider market rate of interest.
Expressed in percentage terms.
Tell me about the breakeven point.
Will not help in decision making.
Variation in cash flow will have negative or multiple IRR.
The concept of the sensitivity of cost of capital is used.
Doesn’t consider market rate of interest.
Cash inflows are reinvested at IRR (Assumption).
It is used to calculate the risk in the project.
Published on 24-Jul-2020 10:33:24