Distinguish between the following: 'Net present value' and 'internal rate of return'.

The net present value (NPV) and internal rate of return (IRR), two widely used method for making capital budgeting decisions are the species of the same genre i.e. Discounted cash flow method, yet they are different from each other on various points. The broad points of difference between the two are as follows: Computation: In the NPV method the difference between the present value of cash inflows and present value of cash outflows is computed as the net benefit by the project. IRR is defined as the discount rate that makes NPV=0. 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 conflict between NPV and IRR rule in the case of mutually exclusive project situation arises due to re-investment rate assumption. NPV rule assumes that intermediate cash flows are reinvested at discount rate and IRR assumes that they are reinvested at rate equal to the proposal's IRR itself. The assumption of NPV rule is more realistic than the IRR method. Objective: The net present value method looks to ascertain the amount which can be invested in a project so that its expected yield will exactly match to repay this amount with interest at the market rate. 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.