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Which is the difference between IRR & NPV and what is better measure for capital budgeting, IRR or NPV?

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تم إضافة السؤال من قبل Muhammad Azeem - CFMA , Finance Manager , Food Concepts LLC (Elevation Burger)
تاريخ النشر: 2015/12/13
Zohair Haiderally
من قبل Zohair Haiderally , Vice President , Copal Amba (Moody's Analytics Company)

If the funding source is know i.e how much equity and how much debt, NPV is the best as it let you know how much excess you will make over and above your cost of capital.

 

However, if you have not yet decided the funding source and want to evaluate the project IRR gives your the project's rate or return. Using this you can decide whether to investment or not based on you ability to secure funding that  ensures your cost of capital is less that the IRR

 

IRR is better as it help you compare with many other accounting ratios such as ROCE, ROE as well.

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