What are the points of differences between Net Present Value and Internal Rate of Return approach used for evaluating investment proposals ? Discuss.

The Net present value and Internal rate of return, two widely used methods are the species of the same genus i.e. discounted cash flow method, yet they are different from each other on various points. The broad point of difference between the two is as follows: 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: The presumed rate of return for the reinvestment of intermediate cash flows is the firm's cost of capital when NPV is used, while it is the internal rate of return under the IRR method. So the net present value method is more reliable than internal rate of return method for ranking two or more projects. Objective: The net present value method is a method to select/accept the projects which have positive net present value. On the other hand, internal rate of return method attempts to find out the rate of interest which is maximum to repay the invested fund out of the cash inflows.