NPV And IRR Flashcards

1
Q

Why NPV is important?

A

When we estimate a project’s cash flows (CF) and then discount them at the project’s risk-adjusted cost of capital, r, the result is the project’s NPV, which tells us how much the project increases the firm’s value.

The NPV and IRR methods make the same accept–reject decisions for independent projects, but if projects are mutually exclusive then ranking conflicts can arise. In such cases, the NPV method should generally be relied upon.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly