Question
Net present value is a capital budgeting method which is used to evaluate the potential of physical asset projects in which a company may consider
Net present value is a capital budgeting method which is used to evaluate the potential of physical asset projects in which a company may consider to invest. NPR method uses the discounted cash flow of the project and also considers its the investment which results in more accurate and reliable results.
On the other hand, though IRR relies on the same NPV formula, it only considers the annualized cash flow and disregard the investment. IRR provides result in annualized form, which means you can compare different projects on the basis of their discounted cash flow of different years. But comparing becomes a bit harder when the life of project differs in time. In such situation, NPR is considered more useful as it gives a result that considers all the years together due to which projects of different life span can be easily compared.
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