Accounting › Section X · Capital budgeting decisions › Topic X.4

Net present value and internal rate of return

Payback and ARR treat a dollar in year 5 like a dollar today. Net present value and the internal rate of return fix that by discounting every cash flow to the present, so a project's costs and benefits are finally measured in the same kind of dollar.

1 · Read 2 · Flashcards (15)3 · Test your understanding (5)

In this topic

Discounting the whole project
Net present value
Worked example: NPV with even cash flows
Uneven cash flows
Worked example: NPV with uneven cash flows
The profitability index
The internal rate of return
Worked example: IRR with even cash flows
Worked example: IRR with uneven cash flows
Common mistakes to avoid
Key takeaways

This topic is part of Wuanberri Pro. Checking your access…

← Previous topic Next topic →