Distinguish between the following: Net Present Value and Internal Rate of Return

Difference between Net Present Value and Internal Rate of Return Interest Rate: Under the net present value method, rate of interest is assumed as the known factor whereas it is unknown in case of internal rate of return method. Reinvestment Axiom: Under NPV method, it is assumed that cash inflows can be re-invested at the discount rate in the new projects. However, in internal rate of return, it is assumed that cash inflows are reinvested at IRR. Objective: The net present value method is used to find out the present value of net cash outflow or project surplus whereas IRR method is used to find out the rate at which the net present value is equals to cash outflow of the project.