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A Comparison of Similarities, Differences and Conflicts Between NPV and IRR

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DOI: 10.23977/edms2021.002


Zoey Hua

Corresponding Author

Zoey Hua


The primary goal of using the IRR is to understand the discount rate which has an implication on the present value. It makes the present value of the sum of yearly nominal cash incomes equivalent to the initial net cash layout of the investment. IRR is considered one of the most ideal methods for identify an expected return with a specific business venture. In that case, it is closely related to the Compound Annual Growth Rate. The IRR can suitable be used when estimating the possible advantage or disadvantage of opening a new venture versus expanding the existing operation to achieve a higher level of efficiency. With that, a business can understand what is the most efficient step to make in ensuring the success of the business overall. In NPV, the present value is calculated through discounting a venture’s future cash flows at cut off rates that are predefined while IRR cash flows get discounted through trial-and-error methods that are equal to NPV.


NPV, IRR, Budget, Estimate

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