The NPV profile is a graph that illustrates a project's NPV against various discount rates, with the NPV on the y-axis and the cost of capital on the x-axis. To begin, simply calculate a project's NPV using different cost-of-capital assumptions. Once these are calculated, plot the values on the graph.

Figure 11.5


Look Out!
Since the IRR is the discount rate where the NPV of a project equals zero, the point where the NPV crosses the x-axis is also the project's IRR.
 


Cash Flow and NPV Applications

Related Articles
  1. Investing

    Internal Rate Of Return: An Inside Look

    Use this method to choose which project or investment is right for you.
  2. Investing

    Capital Budgeting: Which is Better, IRR or NPV?

    Using internal rate of return and net present value for capital budgeting evaluations often end in the same result. But there are times when using NPV to discount cash flows makes more sense.
  3. Investing

    Return on Investment (ROI) Vs. Internal Rate of Return (IRR)

    Read about the similarities and differences between an investment's internal rate of return (IRR) and its return on investment (ROI).
  4. Markets

    Internal Rate of Return Formula for Excel

    The internal rate of return, or IRR, is a popular metric businesses use to measure a project’s return on investment.
  5. Entrepreneurship & Small Business

    Calculating the Internal Rate of Return Using Excel

    The internal rate of return on investments is explained and illustrated in different investment scenarios.
  6. Investing

    An Introduction To Capital Budgeting

    We look at three widely used valuation methods and figure out how companies justify spending.
  7. Personal Finance

    How to Compare Permanent Life Insurance Policies

    How you can use the internal rate of return to compare and purchase a permanent life insurance policy.
  8. Markets

    Modified Internal Rate of Return (MIRR)

    Modified internal rate of return (MIRR) is a variant of the more traditional internal rate of return calculation.
  9. Investing

    Options Risk Graphs: Visualizing Profit Potential

    With a single diagram, you can see how price, time and volatility affect potential gains.
  10. Managing Wealth

    Project Manager: Job Description & Average Salary

    Discover more about the specific tasks that project managers are responsible for and the average salary that can be expected in such a position.
Trading Center