The Effectiveness of NPV and IRR Used in Fundamental Financial Markets

Abstract

In financial markets, investors often use internal rates of return and net present value to evaluate the value of alternative projects. In this paper, the income of two independent projects will be calculated to decide which project is more worthy. By comparing the calculation results of net present value and internal rate of return, we can visualize the investment results. Using these models, investors can see the results of their investments accurately and clearly. Besides, there is a contradiction between net present value and internal rate of return when investment projects are compared and selected. This paper makes a deep comparative analysis on the causes of contradictions and explores the causes of contradictions. The advantages and disadvantages of net present value and internal rate of return are analyzed, respectively. Investors should pay more attention to these disadvantages when investing and reduce the company's investment risk and investors to increase the profits.