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Payback method, IRR and NPV

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The three methods of ranking investments are the payback method, the internal rate of return, and net present value. Please explain the differences of each.

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The three methods of ranking investments are the payback method, the internal rate of return, and net present value.

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The payback method simply calculates how many periods into the future it takes for a capital project to repay the initial investment. This amount of time is called the payback period. A particular amount of time is selected as a cutoff payback period for the project to payback the initial investment. The easiest way to think of the payback period is ...

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Sandeep Bardia, MBA
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  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
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