What are the differences between the pure current value and the internal level of return?

The pure current value and internal return rate are measures used to evaluate a potential investment or capital project. Both measures include the use of a current of the expected inflow of cash and drains to determine whether the investment is acceptable. The net present value (NPV) shows what the project's intake potential is at the beginning, while the internal return rate (IRR) provides a percentage of growth. The internal return rate is also referred to as a discount rate. When comparing potential projects, it is often assumed that a higher internal return rate suggests a better choice.

Another way to evaluate the internal rate of return is to interpret it as a minimum rate of return that is acceptable. Since the calculation assumes that the net present is zero, the IRR is the smallest amount of the investor can expect to receive. This is based on the principle that the future discounted income of investment minus the initial outflow of the project would not have anythe current value.

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internal return rate can be considered as an uniform point of the investment. The main weakness of the calculation is that it assumes that the investment will not generate money or loss. IRR also counts on future income on certain milestones and monetary values ​​throughout the project. If any of these factors change, this may change the actual discount rate.

NPV calculation is used to discount all future income payments based on a predetermined return rate. For example, if an investor requires a minimum yield of 5%, each of the future income payments would be discounted using this percentage to arrive at today's value. All discounted future income payments are then added and deducted from the initial cash outflow of the project to achieve a net current value.

when evaluating a group of potential capital projects or inVESTIC is assumed that a higher net present value is favorable. The principle of this assumption is that a project that has more values ​​today will bring higher financial benefits than a project with a lower current value. Since it already assumes a certain level of return, the NPV method indicates the money value of the expected payment of investment income. A predetermined return rate may not be the actual return rate of the project, because it could fluctuate for the duration of the project.