Recent Articles

Conflict Between NPV and IRR (And Problem with IRR)

When you are analyzing a single conventional project, both NPV and IRR will provide you the same indicator about whether to accept the project or not. However, when comparing two projects, the NPV and IRR may provide conflicting results. It may be so that one project...

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Internal Rate of Return

IRR is the case of a discount rate that equalizes the present value of cash inflows with present value of cash outflows. Within the context of a net present value analysis, when the cash inflows and outflows are known, IRR will be the rate that causes the NPV to equal...

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Net Present Value

The net present value is the most commonly used method to decide whether to invest in a project or not. The net present value of a project is equal to the sum of the present value of all after-tax cash flows from the project minus the initial investment. The...

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Using a Timeline to Solve Time Value of Money Problems

When solving a time value of money problem, it is sometimes easy to draw a timeline to present the cash flows on it. Once we have the timeline, we can easily understand the variables and visualize the present value or future value calculations. In the previous pages,...

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Annuities with Different Compounding Frequencies

In all the above examples for annuities, we assumed that the compounding frequency is annual. However, this may not always be the case and an annuity may have monthly, quarterly, or even semi-annual compounding. We can solve the time value of money problems for any of...

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