Section outline

  • Welcome to the module "NPV and other Investment Decision Criteria"! This module introduces the most important investment decision criteria, in particular the Net Present Value (NPV) and the Internal Rate of Return (IRR).


    The main learning goals of this module are:
      • Know what a Net Present Value (NPV) is and how to compute the NPV of any cash flow stream.
      • Learn how to use the NPV rule in investment decisions.
      • Understand how and why managers who follow the NPV rule tend to increase the financial value of their firm.
      • Know how to compute and interpret the Internal Rate of Return (IRR) of projects and appreciate the strengths and weaknesses of this metric.
      • Know what the Payback is and understand why investment decisions based on payback are often flawed.