Simplifying Net Present Value (NPV) and Internal Rate of Return (IRR)
Net Present Value (NPV) and Internal Rate of Return (IRR) are two of the most widely used methods for evaluating the profitability of investments or projects.
These metrics are essential for both corporate finance and investment analysis, providing insights into the expected profitability and financial viability of potential investments.
Net Present Value (NPV)
The contributions of the economist Irving Fisher (1867 — 1947) in the early 20th century were theoretical, providing the economic principles that underpin the use of NPV and IRR in financial analysis.
Continuing Fisher’s work, Joel Dean (1906–1979) contributed to the field of corporate finance and advocated for NPV and DCF methods.
His seminal work, “Capital Budgeting,” published in 1951, is considered a classic in the field. In it, Dean detailed the practical applications of DCF analysis and NPV, providing a strong argument for their use in evaluating the economic viability of capital projects.
