– The NPV approach correctly accounts for the time value of money and adjusts for the project’s risk by using the opportunity cost of capital as the discount rate.
– Thus, it clearly measures the increase in market value or wealth created by the project.
– Net present value is an absolute measure i.e. it represents the dollar amount of value added or lost by undertaking a project.
– IRR on the other hand is a relative measure of investment worth i.e. it is the rate of return a project offers over its lifespan.
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