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Vinicius_Caldas

  • 4 years ago

Hi, what´s the better measure when the capital is scarce: NPV or IRR?

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  1. JamesJ
    • 4 years ago
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    NPV is in general a better measure. But here it is most emphatically better because it will tell you precisely how much cash the project will throw off. For example, suppose a company has $1,000 capital and the choice of only two non-replicable projects: A, investment $100K, IRR = 50%, NPR = $1 million B, investment $1,000, IRR = 10%, NPV = $1.2 million Even though project A has a higher IRR, project B is preferable because it will give you more cash.

  2. Vinicius_Caldas
    • 4 years ago
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    Thanks. Moreover, if you use the MIRR you will have the same answer given by the NPV, i.e, the project B.

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