What is the difference between net present value and internal rate of investment?

NPV is often preferred in decision making since it measures the absolute amount of value add the firm can take. This is quite useful when comparing making choices between different decisions. IRR is measure of the return based on the amount you invested, so the measurement of IRR is more relative than absolute. But in most instances, you could use both forms to make decisions regarding your investments.

One disadvantage of NPV is that you got to come up with a discount rate, which is quite tough especially if you have to compare projects with different risk profiles.

Different groups of investors also use IRR and NPV too. For example, Private Equity firms often look at IRR, while other buy or sell side firms may use NPV in the form of a DCF for different functions.

The net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a periof of time. On the other hand, the internal rate of return is used to estimate the profitability of potential invetments.