ABSTRACT
This chapter helps the readers to understand the meaning and decision rule of net present value (NPV) method, and to understand the computation of NPV using Excel. An investor generally encounters a problem or challenge in deciding on the most economically viable project or a venture. The investment may involve a considerable amount of money. The accept/reject criteria of the NPV method works by comparing the present value of the future cash streams with the initial investment. The chapter also helps the readers to understand the meaning and decision rule of internal rate of return (IRR) method. IRR is a modified compound annual growth rate and is used to calculate return over a holding period when the investments are multiple or in a varied frequency. IRR is also called the marginal efficiency of capital, the marginal productivity of capital, the yield on investment, time adjusted rate of return, a marginal rate of return, and so on.
