IRR Or NPV- Decisions Budgeting
Which method do you think is the better one for making capital budgeting decisions - IRR or NPV IRR is the interest rate at which the NPV is zero, so both are related to each other. Expert says that NPV is better due to 100% accurate all the time. On opposite IRR present short term projects to be more attractive and also make projects with a negative NPV look attractive and vice versa. When all other finding to be equal utilizing the internal rate of return (IRR) and net present value (NPV) measurements to evaluate projects often gives the same findings. In number of projects using IRR is not as effective as using NPV to discount cash flows. IRR's major limitation can also be present as its greatest strength of using one single discount rate to evaluate every investment. When the calculated IRR is higher than the true reinvestment rate for interim cash flows, the measure will overestimate sometimes very significantly the annual equivalent return from the project. The f