What is a NPV, IRR?

Question

What is a NPV, IRR?

Accepted Answer

NPV stands for Net Present Value and IRR stands for Internal Rate of Return.

NPV is a financial metric used to determine the profitability of an investment by calculating the present value of expected cash flows.
IRR is the discount rate that makes the net present value of an investment equal to zero.
Both NPV and IRR are commonly used in capital budgeting to evaluate investment opportunities.
NPV takes into account the time value of money and helps in comparing different investment options.
IRR helps in determining the rate of return that an investment is expected to generate.
A positive NPV indicates that the investment is expected to generate more cash inflows than outflows, while a negative NPV indicates the opposite.
If the IRR of an investment is higher than the required rate of return, the investment is considered favorable.
For example, if a company is considering investing in a new project, they would calculate the NPV and IRR to assess its financial viability.

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