Net Present Value vs Internal rate of return difference

Posted on 05-05-2016        By ADMIN

Net Present Value vs Internal rate of return difference 


TheNet Present Value and the Internal rate of return methods ar e two closelyrelated investment criteria. Both are time-adjusted methods of measuringinvestment worth. In case of independent projects, two methods lead to samedecisions. However, under certain situations , a conflict arises between them.The situations may be Conventional and Non-conventional investments.

AConventional investment can be defined as one whose cash flows take the patternof an initial cash outlay followed by cash inflows. Conventional projects haveonly one change in sign of cash flows; For Example,-+++.

ANon-Conventional investment, on the other hand, is one whose cash outflows arenot restricted to the initial period, but are interspersed with cash inflowsthroughout the life of the project. Non-Conventional projects have more thanone changes in the signs of cash flows; For Example, -+++-+.

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