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- 2011-7-11
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3#
发表于 2011-7-13 15:13
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In adition to anish was saying, remember that the point where the NPV profile starts at the vertical axis is the sum of the total undiscounted cash flows (or NPV if discount rate = 0%). Where the NPV profile crosses the horizontal axis, that is equal to the project's IRR (where NPV = 0).
Say you have 2 projects:
Project 1:
CF-0 = -1,000
CF-1 = +1,200
Project 2:
CF-0 = -1,000
CF-1,2,3,4,5 = 0
CF- 6 = +1,200
Its easy to see and calculate that the IRR on Project 1 (20%) is higher than Project 2 (3.09%).
If you draw the NPV profiles, they will both start at the same point on the vertical axis since both projects have the same undiscoutned net cash flows (+$200).
All you need to do to get the full NPV profile is connect that vertical axis point (+$200) with their corresponding IRRs (20% and 3.09%). Obviously, the 3% IRR will be steeper than the 20% IRR.
Hope this helps. |
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