An interactive investment-analysis lab: explore net present value, IRR, scenarios, sensitivity, Monte Carlo and real options.
Drag the marker or the plot to change the discount rate.
Net present value and internal rate of return are the core capital budgeting tools. Enter a project's cash flows to see its NPV at a chosen discount rate, its IRR, the profitability index and the NPV profile that shows how value changes as the discount rate moves.
NPV is the value a project adds today at a given discount rate. IRR is the discount rate at which NPV is zero. Accept a project when NPV is positive, or equivalently, for conventional cash flows, when IRR exceeds the cost of capital.
When ranking mutually exclusive projects of different size or timing, or when cash flows change sign more than once, which can give multiple IRRs. NPV is the more reliable criterion.