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 valueInternal 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.