Question

compare and contrast the NPV, IRR, and MIRR.

what is the difference between the three measures and what each one calculates and represents

Answer 1

NPV: Full form Net present value.

This represents the net present value. NPV accounts for the time value of money and is calculated in absolute terms.

We take into consideration all the cash flows both present, intermediate and future and then using the discount rate we convert the intermediate and the future cash flows to the present stage.

Here cash flows are assumed to be re-invested at cost of capital rates.

If NPV is postive, then the proposal is viable and if negative, the proposal is not viable.

IRR: Full form Internal Rate of Return.This is a capital budgeting metric to evaluate the proposals

Here cash flows are assumed to be re-invested in IRR rates.

Here we evaluate the investor rate of return which represents the attractiveness for a project and This is expressed in Percentages(%).

MIRR: Modified Internal Rate of Return.This is a capital budgeting metric to evaluate the proposals in case of disparity problems.

This has been brought up to solve the problem where the IRR methodolgy fails.

Here we evaluate the investor rate of return which represents the attractiveness for a project and This is expressed in Percentages(%).