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IRR and NPV Approach

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Describe how the IRR and NPV approaches are related.

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Solution Summary

This solution defines the Net Present Value (NPV) and the Internal Rate of Return (IRR) and explains the relation between them. Reference used is included.

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NPV is defined as the difference between an investment's market value and its cost. It is only a good investment if it makes money for the company so a positive NPV will be needed. Following steps have to be followed:
? Cash flows of the investment project should be forecasted based on realistic assumptions.
? Appropriate discount rate should be identified to discount the forecasted cash flows. The appropriate discount rate is the project's opportunity cost of ...

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