Unformatted text preview: that makes the present value of all expected future cash flows equal to zero. That is, the IRR is the discount rate that causes a project’s NPV to equal zero. The net present value (NPV) and the internal rate of return (IRR) could as well be defined as two faces of the same coin as both reflect on the anticipated performance of a firm or business over a particular period of time. The main difference however should be more evident in the method or the units used. While NPV is calculated in cash, the IRR is a percentage value expected in return from a capital project (Bruce, 2003). IRR and NPV are related in that both use the time value of money and take risk into account. NPV accounts for risk by using a risk-adjusted discount rate, while IRR uses a risk-adjusted hurdle rate against which to compare the project and make the accept/reject decision....
View Full Document
- Spring '11
- Net Present Value, Internal rate of return