The Development and Usage of NPV and IRR and Their Comparison

Abstract

Net present value (NPV) and internal rate of return (IRR) are two popular capital budgeting techniques in the modern economy. Almost all finance textbooks included these two concepts. The paper presents a review of NPV and IRR from the following perspectives and aims to provide a general understanding of NPV and IRR for the audience. The development of NPV and IRR will be discussed in this paper. The disadvantages and advantages of NPV and IRR will also be presented with detailed examples. The utilization of NPV and IRR in three counties, the United States, Finland, and Japan, is discussed to offer an overview of companies' preference of decision methods in these three counties.