NPV vs IRR
Edspira・2 minutes read
MPV is used to evaluate firm projects by measuring added wealth, while IRR calculates a rate to make MPV zero. Decision rules dictate accepting projects with MPV > 0 and IRR rate < or > discount rate, prioritizing MPV over IRR in mutually exclusive projects due to scale effects.
Insights
- MPV and IRR are methods used to evaluate projects in a firm, with MPV indicating added wealth and IRR aiming to equate MPV to zero by determining a rate.
- In scenarios with mutually exclusive projects, MPV is favored over IRR due to its consideration of scale effects, resulting in more substantial wealth added to the firm. Understanding the appropriate application of MPV and IRR is vital, particularly in cases with intricate cash flow patterns that could complicate IRR calculations.
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Recent questions
What are MPV and IRR used for?
Evaluate projects at a firm.