NPV and IRR (True Or False)?

No the Internal Rate Of Return is not the same as the Net Present Value.

Here is the explanation.

Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows. NPV compares the value of a dollar today to the value of that same dollar in the future, taking inflation and returns into account. NPV analysis is sensitive to the reliability of future cash inflows that an investment or project will yield and is used in capital budgeting to assess the profitability of an investment or project. While Internal rate of return (IRR) is the discount rate often used in capital budgeting that makes the net present value of all cash flows from a particular project equal to zero. Generally speaking, the higher a project's internal rate of return, the more desirable it is to undertake the project. As such, IRR can be used to rank several prospective projects a firm is considering. Assuming all other factors are equal among the various projects, the project with the highest IRR would probably be considered the best and undertaken first.

Differences between NPV and IRR

Both NPV and IRR are primarily used in capital budgeting, the process by which companies determine whether a new investment or expansion opportunity is worthwhile. Given an investment opportunity, a firm needs to decide whether undertaking the investment will generate net economic profits or losses for the company. To do this, the firm estimates the future cash flows of the project and discounts them into present value amounts using a discount rate that represents the project's cost of capital and its risk. Next, all of the investment's future positive cash flows are reduced into one present value number. Subtracting this number from the initial cash outlay required for the investment provides the net present value (NPV) of the investment.

 

 

 

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Answer : FALSE

 

Agree with Experts...

agree with Ms. Ghada

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Thanks for Invite,

 

Answer : FALSE      

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 "I agree with the answers  " False

 

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False..................................................................

False:

 

the NPV formula solves for the present value of a stream of cash flows, given a discount rate. The IRR on the other hand, solves for a rate of return when setting the NPV equal to zero (0).

that why there is a d/f b/w NPV and IRR...

but purpose is same of both

False.

NPV : Relates to the Net present value of any asset vs. future value of that asset.

IRR: The returns estimated from the use and operations of a asset.

False. IRR simply calculates the rate at which Npv will hit zero. N pV on the other hand calculates the present value of cash flows at a discounted rate.

My answer for this question is " FALSE ".Thanks

False. NPV and the IRR are not the same.

NPV is the net cash flow (in figure) arrives after adjustment of cash inflows and cash outflows. This is the difference between cash inflows and cash outflows.

IRR is the discount rate at which the NPV is zero or we may say that cash inflows and cash outflows are equal.