by looking at a problem, how are you able to know if to use the net present value (NPV) and/or the internal rate of return (IRR) formula?
thanks.
2007-11-05 13:39:54 · 2 answers · asked by Grace M-T 1 in Business & Finance ➔ Investing
It doesnt make any difference. They are two sides of the same coin. The result of NPV is expressed in dollars. And the result of IRR is expressed as a percentage. The IRR is the interest rate that makes the NPV equal to zero.
2007-11-05 21:25:05 · answer #1 · answered by jeff410 7 · 0⤊ 0⤋
NPV is a dollar amount. So if the problem is about dollars, or value, then its NPV.
IRR is about the interest rate. Its useful for comparing the rate of return on one investment versus another. You can compare a $1000 bond's return to a million dollar bridge. It's all about the interest rate.
2007-11-05 21:45:16 · answer #2 · answered by hottotrot1_usa 7 · 1⤊ 1⤋