Category Archives: IRR

Shortcomings of the IRR

Shortcomings of the IRR Now here is another example. Project B and Project B again you get $100 million today, you expect to put down $300 million a year from now, and you expect to get $250 million a year from now. And we are still dealing; let us say with the same company that has the same discount… Read More »

Multiple IRR

Multiple IRR In real life, you would find many projects that have more cash outflows in addition to initial cash outflow. In such cases there may be more than one discount rate that can result in Zero NPV of those projects and there may also be a case where there is no discount rate that will result in zero… Read More »

How to Calculate Payback Period | Capital Budgeting Techniques

How to Calculate Payback Period-Capital Budgeting Techniques Payback period is calculated by capital invested in the project by the net annual cash flow. Average of net annual cash flows may be used if net annual cash flows are not expected to be the same. Payback Period= Initial Investment/Average Annual Cash Flows

Internal Rate Of Return And Mutually Exclusive Projects

Internal Rate Of Return And Mutually Exclusive Projects……. What’s the Concern? While considering the mutually exclusive projects, IRR technique can be misleading. Investment projects are said to be mutually exclusive if only one project could be accepted and others would have to be rejected. NPV and IRR methods for project evaluation leads to conflicting results… Read More »

Net Present Value (NPV) Formula and Example

How to Calculate Net Present Value using Excel? The calculation of net present value is used when a business has to identify a viable investment opportunity. There are many ways to calculate the NPV. The simplest way is:                  By Use of NPV function in Excel: The NPV function consists of the following arguments: =NPV (Rate, FCF… Read More »