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'Rules For Investment Decisions' Because of various shortcomings in the average rate of return and payback methods, it is generally felt that discounted cash-flow methods provide a more objective basis for evaluating investment projects. The two discounted cash-flow methods are Internal Rate of Return (IRR) and Net Present Value (NPV). This Technical Note assumes basic concepts and calculations of IRR and NPV are understood but if employees would like further information on these, they are advised to consult Van Horne, Financial Management and Policy, 11th edition, pg 14-21. In most situations, IRR and NPV provide the same choices. 'The IRR approach has the advantage of providing a rate of return that is easier to interpret, and for that reason is popular in industry.' (Schall, 1987, pg202). The IRR method does, however, have several drawbacks and the NPV method is generally favoured in most textbooks, despite having problems of it's own. This Note...

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