NPV and IRR formulas explained step by step. Net present value vs internal rate of return — when to use each, decision rules, and CFA Level 1 practice questions.
Sum of PV of all cash flows (including initial investment). Accept if NPV > 0. The theoretically best capital budgeting method.
Discount rate that makes NPV = 0. Accept if IRR > required return. May conflict with NPV for mutually exclusive projects.
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NPV
Where: r = required return (WACC for firm projects)
IRR
Where: IRR = rate where NPV equals zero
Free covers one Quants module. Premium opens all 10 subjects and 59 modules of CFA Level 1.
NPV
Accept if NPV > 0
IRR
Accept if IRR > required return
80+ formulas from all 10 subjects in one place — edit and save your own version.
Use when:
Avoid when:
When NPV and IRR give conflicting rankings for mutually exclusive projects, an analyst should:
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