It has mainly three popular methods.

I) NPV

where ,

NPV > 0 , accept project

NPV < 0 , reject project

NPV = 0 , indifferent in decision making.

ii) B/C ratio or profitability index

– It is the ratio of present worth of benefit stream divided by present worth of cost stream.

Where ,

B/C > 1 , project accepted

B/C < 1 , project rejected

B/C = 1 , Indifferent

iii) Internal rate of return ( IRR )

– Earning rate of project under evaluation.

– Discount rate at which NPV= 0 .

Interpolation is the process of finding a desire value between two other value.

IRR > cost of capital  , accept project.

IRR < Cost of capital , reject project.