PART 1

Net present value represents the difference between the present value of cash inflows and outflows (Gallant, 2023). A positive NPV means that an investment is worth investing in, NPV of zero would indicate that the investment would be balanced between the cash inflows and outflows, if the NPV is negative than the investment would not be worth investing in. The internal rate of return or IRR is used by companies to estimate how much profit would the investment generate over time. NPV and IRR can help a company make smarter decisions and reduce risk when it comes to investing.

What are things/scenarios that would greatly affect the NPV & IRR? and why?

PART 2

Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. NPV is used in Capital budget and investment planning to analyze the profitability of a projected investment or project.

It is essential to understand the different risk and factors that are taken into countability when it comes to the investments being done. Starting off with how differential risk that can be incorporated into NVP analysis. The following would be done by increasing the discount rate for those different projects that hold a higher risk. This tool will reduce the present value of cash flows, which means that it increases uncertainty and risk.

Now lets refer to IRR analysis "The internal rate of return (IRR) is a metric used in financial analysis to estimate the profitability of potential investments. IRR is a discount rate that makes the NVP of all cash flows equal to zero in a discounted cash flow analysis. Leading to apply that the riskier the project, the higher IRR less than riskier ones.

What other things are essential to reduce the risk on investments? What steps must be taking to lower the risk or what things must be considered prior looking into the NVP & IRR?