NPV vs. IRR
Discount rate 0%, NPV =$670,000
Discount rate 2%, NPV=$614,400
Discount rate 6%, NPV=$514,820
Discount rate 11% NPV= $409,000
Capital Cost 5%, Modified IRR= 45.6%
Upon plotting these points on a chart an obvious relationship is modeled. The lower the discount rate the higher the NPV appears to manifest. The curve crosses the x axis at a discount rate of .03%.
Rate at 1%, NPV=$65,358
Rate at 4%, NPV= $7,593
Rate at 10%, NPV= -$91,776
Rate at 18%, NPV= -$197,871
Discount rate at X axis = 2.8%
NPV=3,864,000
Anthes (2003) presented some very useful descriptions of the terms net present value (NPV)...
The article suggested that the NPV and the internal rate of return IRR is defined as two faces of the same coin and both reflect on the anticipated performance of a firm or business over a particular period of time. The main difference is more evident in the method and the units used. While NPV is calculated in cash, the IRR is a percentage value expected in return from a capital project.
Due to the fact that NPV is calculated in currency, it always seems to resonate more easily with the general public as the general public comprehends monetary value better as compared to other values. The IRR method cannot be conclusively used in circumstances where the cash flow is inconsistent. While working out figures in…
References
Anthes, G. (2003). ROI Guide: Internal Rate of Return. Computerworld, 17 Feb 2003.
CFA Study. Net Present Value Vs. Internal rate of return. Viewed on 11 July 2013. Retrieved from http://cfa-studynotes.blogspot.com/2008/10/net-present-value-vs.-internal-rate-of.html
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