There have been a lot of questions from my close friends and acquaintances as to the basic difference between NPV and IRR.
The basic difference between Net Present Value and Internal Rate of Return is on account of the reinvestment assumption!!! NPV assumes that intermediate cash flows that arise from the projects are reinvested at the realistic rate of return whereas IRR assumes that cash flows are reinvested at the cut off rate ( which is a very high rate of return ) and therefore leads to distortion, unrealistic project appraisal and decision making!!
About Me
- dharma
- I believe in "Baptism by fire" that will transform me from an average joe to a true blue bee's knees in corporate finance and investment banking
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment