Internal rate of return (IRR)

Internal rate of return (IRR)

18.11.2016 · Investments
The most credible of the alternative techniques to Net Present Value is using of the Internal Rate of Return, sometimes referred to as the discounted cash flow rate of return. The Internal rate of return rule is based on suggestion: If the return on the investment opportunity is greater than the return on other alternatives in the market with the same risk and maturity then firm’s manager should undertake the investment opportunity. IRR is defined as a discount rate with the NPV equals 0.
Net Present Value (NPV)

Net Present Value (NPV)

18.11.2016 · Investments
Potential profitability of the investment projects can be calculated using NPV method also. Making decisions, Managers use Net Present Value method to choose the most interesting investment project from the economical point of view. Almost three quarters of US corporation used NPV rule for making investment decisions (Graham and Harvey, 2001), so it can be said that NPV method is the most frequent cited capital budgeting tool of choice.
Payback Period

Payback Period

18.11.2016 · Investments
Payback rule is a time that is required to the investing organization to compensate initial capital investments using the pure inflow of money resources generated at the project realization. Pure inflow of money resources is equal to a difference between an annual gain and the operational expenses caused by the project. Expenses on the capital during the calculation of a time of recovery are not considered. The criterion of a recoupment is that the most preferable from the financial point of view is the project with the lowest Payback time. Because threat of liquidity and a risk of inability to compensate initial investments are less.