Comparison and Contrasting between IRR and NPV Finance, SPSS Essay (Essay Sample)
to compare and contrast between internal rate of return and net present value
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COMPARING AND CONTRASTING NPV AND IRR
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Differences between NPV and IRR
IRR determines the discount rate of return that is produced by a particular project using the trial and error method, notwithstanding the required rate of gains and other factors. While the NPV, the rate of discount is determined through discounting the future cash flows of a project at a predetermined rate. For example, when you are evaluating a building which has short leases, you need to consider increasing your rate of discount to cater for the risks associated with rollover. Therefore, IRR does not take into account the economies of scale and neglects the project's value. It is not easy to choose between schemes with equal IRR, which could otherwise be differentiated in terms of dollar returns (Magni, 2017).
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