Response of analysis of IRR and NPV
Hi Terry,
Thanks for sharing your analysis of IRR and NPV. Your discussion was concise. I like your method of calculating the internal rate of return. It is a great idea to understand both IRR’s and NPV’s decision criteria in capital budgeting. It is arguably true that an investment with a high IRR is likely to be profitable (Patrick & French, 2016). From reading the posting, I found that some areas require more clarification. Does IRR also rely on assumptions and estimates as NPV does? Also, what would you advise investors concerning projects with NPV of zero? This discussion is similar to mine because both argue that NPV and IRR are used in deciding whether to expand existing operations or establish new ones. On the other hand, the two differ in steps used in determining the IRR.
References
Patrick, M., & French, N. (2016). The internal rate of return (IRR): projections, benchmarks, and pitfalls. Journal of Property Investment & Finance.