Both the NPV and the internal rate of return methods recognize that the timing of cash flows affects project value.

Question

Quizplus · Accepted Answer

Both NPV and IRR take into account the timing of cash flows in order to assess project value. NPV calculates the present value of expected cash inflows minus the present value of expected cash outflows, using a discount rate that reflects the project's risk. IRR, on the other hand, estimates the discount rate that makes the net present value of a project's cash flows equal to zero, which in turn reflects the project's internal rate of return. Both methods consider the concept of time value of money, which asserts that the value of money changes over time due to factors such as inflation, opportunity cost, and uncertainty. As a result, the timing of cash flows can make a significant impact on a project's profitability and feasibility.

Both the NPV and the Internal Rate of Return Methods