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Discuss the steps an investor will use to evaluate a typical investment outlay, making a distinction...

Discuss the steps an investor will use to evaluate a typical investment outlay, making a distinction between net present value method and internal rate of return method. If the project’s internal rate of return is greater than the cost of capital, then the project is acceptable.

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Answer #1

Investors always first considers various market research and analysis before investing in any project, by making distinction between net present value and internal rate of return on such projects.

Internal rate of return rule is related to the net cash flow of any investment. It measures that at what rate any project/investment will provide back the income.
It is related with the company's cost of capital .

Net present value on the other hand is the discounted rate of internal rate of return, where the net present value of any investment/project is considered and decision is made whether to invest in such a project or not.


It is suggestible to invest in such a project where the internal rate of return on such project exceeds the cost of capital.

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