NPV and IRR explained
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- Опубліковано 6 жов 2018
- Net Present Value and Internal Rate of Return, in short NPV and IRR. What is the purpose of the NPV and IRR methods of investment analysis, and how do you calculate NPV and IRR?
The main idea of Net Present Value is very simple: time is money! NPV is the core term in #capitalbudgeting
The net present value (or “discounted cash flow”) method takes the time value of money into account, by:
- Translating all future cash flows into today’s money
- Adding up today’s investment and the present values of all future cash flows
If the net present value of a project is positive, then it is worth pursuing, as it creates value for the company.
IRR is the discount rate at which the net present value becomes 0. In other words, you solve for IRR by setting NPV at 0.
Related videos:
Net Present Value explained (including present value and future value): • Net Present Value (NPV...
Internal Rate of Return explained: • Internal Rate of Retur...
NPV IRR Payback period scenarios: • NPV IRR Payback period...
Time value of money • Time value of money ex...
How to calculate #NPV in Excel • NPV in Excel
How to calculate IRR in Excel • IRR in Excel
Philip de Vroe (The Finance Storyteller) aims to make strategy, finance and leadership enjoyable and easier to understand. Learn the business vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better stock market investment decisions. Philip delivers #financetraining in various formats: UA-cam videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!
![IRR vs. NPV - Which To Use in Real Estate [& Why]](http://i.ytimg.com/vi/hGw2J__2adU/mqdefault.jpg)
Lots of exciting and helpful new videos coming up! Be sure to click the like button, subscribe and turn on notifications to ensure you don't miss anything. Now that you learned how the NPV and IRR concepts work, your next step is to understand the impact of various scenarios on the NPV and IRR outcomes: ua-cam.com/video/1ZTIwmn1Cm0/v-deo.html
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I can't thank you enough. I really can't. You explained to me 2 weeks worth of materials in less than 10. God bless you
So happy to hear that, Ibsa Mohamed! That is wonderful. Thank you for commenting. I think you should watch the NPV IRR payback scenario video next to understand this even better :-) ua-cam.com/video/1ZTIwmn1Cm0/v-deo.html
This single video has just taught me a full term of university coursework... Somebody remind me why I'm paying £9k a year
@@nickyanna3571 Thank you! That is both a hilarious as well as saddening statement on the experiences of university education. Get your certificate and get out of there into the real world! ;-)
Finally, explained in a way thats easy to understand! I suggest all PMP students to watch it!
🤦🏽♀️🥰🤘🏽
I can't.thank you more. I was in class and completely clueless what the lecturer was teaching. As a slower learner, you're really a blessing to us. Thank you so so so much ❤️
You're welcome, Clifton! I have a few more NPV and IRR examples for you in this video: ua-cam.com/video/1ZTIwmn1Cm0/v-deo.html and recently finished a video on the related topic WACC ua-cam.com/video/1O-DbtVueMw/v-deo.html
I did not understand where does this 35, 117 en (46) come from? how has he this calculated
@@TheFinanceStoryteller thank you! I needed the WACC video and you made it. So timely.
@@cliftonaurelius3060 You're welcome, Clifton! Glad to hear that.
@@abidullahkhamosh2099 Hello Abidullah! Let me walk you through the formula to arrive at $117 in project B, then you can replicate the same calculation for the other projects A and C. The undiscounted cash flow in project B are Year0 ($1000) Year1 $600 Year2 $500 Year3 $300 Year4 $200. The discounted cash flows for those are are ($1000) + $600/1.2 + $500/1.44 + $300/1.728 + $200/2.0736. If that is still confusing, then watch the related video specifically on NPV: ua-cam.com/video/N-lN5xORIwc/v-deo.html
I am loving your short and concise videos. They cover the key concepts and make them very clear!!
Thank you for the kind words, Raul! Hope there are more videos on the Finance Storyteller channel that are useful to you. Please spread the word to friends and colleagues! :-)
I did not understand where does this 35, 117 en (46) come from? how has he this calculated?
@@abidullahkhamosh2099 35 came from calculating the future discounted cash flows of 333+278+231+193 which is equal to 1035 and subtracting this 1035 from the initial investment of 1000 and you got this 35. i hope this will help you.
I'm italian and I was struggling with this for a course in english, thank you this video is very easy to understand!!!
Ciao! Very happy to hear that. Greetings from the Netherlands!
@@TheFinanceStoryteller Hey. Well explained. How did you get the cash inflows for each? How do you determine the value of each project and which to choose, besides comparing npv. Does a higher or lower irr rate matter ? As well as payback period ? Would you choose an early payback period project that offers a lower amount with a wacc of 12.5% payback of 1,5 years and net present value of 850 000 with irr of 11% or.... a project with a wacc of 12.5% at a period of 2.7 years and Npv of 1500 291 with irr of 19.26% and why ?
I’m American and I was struggling as well, I’m convinced finance is it’s own language and culture haha thanks for making this video!
A semester in less than 10 minutes
Wow, thank you, that's a great compliment. Here's the link to the playlist with related concepts like WACC, crossover rate, etc ua-cam.com/video/N-lN5xORIwc/v-deo.html
I’m thinking of getting into accounting. Is this exaggerated? 😂
@@Earth_By_Board yeah its very exaggerated, its more like a week or 2
@@Earth_By_Board yes. It’s covered in one lesson for like 20 minutes.
Not really
Best NPV and IRR explanation I've ever heard. Thank you
Happy to hear that, Bongani! I have videos on related capital budgeting techniques for you in this playlist: ua-cam.com/video/ZuH_q5crAWg/v-deo.html
Man. you are a great teacher! Many folks make it hard to understand using jargons and stuff. never understood 100% but now I have nailed it. Thanks so much!
Thanks for the kind words! Very happy to hear that! I have many more related videos on WACC, payback period, etcetera that could be helpful for you: ua-cam.com/video/N-lN5xORIwc/v-deo.html Please subscribe, and spread the word to fellow students!
Excellent. The perfect video which cleared all my queries on NPV and IRR and provided a base on these concepts. Covered what is it and how to calculate it. Thanks for posting this awesome video.
Thank you, thank you, thank you for the very kind words! Happy you enjoyed it. Please tell all your friends and colleagues about it. ;-)
Here's the link to two "bonus videos" on how to calculate NPV and IRR in Excel:
NPV ua-cam.com/video/jQ_NDQ2qVVA/v-deo.html
IRR ua-cam.com/video/L0JCg5TXudc/v-deo.html
currently reviewing for my cma exam and i kind of struggling with this topic but you explained it in just 6 minutes and i can't thank you enough! you are a lifesaver!
Happy to help! I have a playlist for you with related topics like payback, discounted payback, WACC, etcetera: ua-cam.com/video/1O-DbtVueMw/v-deo.html&pp=gAQBiAQB
@@TheFinanceStoryteller thank u so much!
@@loveelykiim1001 Please share with your fellow students!
Without a doubt the best explanation of npv and irr on UA-cam. Thank you.
Thank you very much, Robert! Wonderful to hear that.
I really can't thank you enough. I wish I had a teacher like you. God bless you. Amen
Happy to help! I can be your virtual teacher on UA-cam! Here is the link to a playlist with related videos like WACC: ua-cam.com/video/1O-DbtVueMw/v-deo.html
Thank you so much! I was having a hard time to understand the topic, but you were amazing in clarifying it.
You're welcome! Please subscribe to the channel, I have related videos on topics like WACC and payback period as well.
Omg thank you so much!! A lecture and multiple videos later, your video finally explained it thoroughly in under 4 mins. 3 years and a pandemic later your videos still teaching!!
Great to hear, Johanna! Yes, this video has been very successful, and I am happy that so many people found it useful to understand capital budgeting concepts. Here's the playlist with related terminology on WACC etcetera ua-cam.com/video/N-lN5xORIwc/v-deo.html
@@TheFinanceStoryteller thank you I will be needing it! Just started supply chain management last week. Thanks so much!!!
@@johannakenwood3359 You have come to the right place! Here are my thoughts on inventory management: ua-cam.com/video/DZhHSR4_9B4/v-deo.html
I wish I had access to your videos during University. This is one of the best and clear explanations of NVP and IRR. Thank you
Wow, thank you, Jenny! Please spread the word. Here is the link to my playlist with more capital budgeting content: ua-cam.com/video/N-lN5xORIwc/v-deo.html
easiest explanation I've seen. thank you! you've helped me prepare for my exam!
Thank you for commenting! Wishing you all the best with your exam. Maybe the related video on WACC vs IRR can help you as well ua-cam.com/video/ZuH_q5crAWg/v-deo.html
Thank you this is so simple for me to understand. Currently in my second year completing financial risk. Thanks!
Great to hear. Please spread the word! :-)
Just used this video for my pmp exam learning. Valueable information in just few minutes.... Thank you
Thanks! Great to hear that. I think you will enjoy the follow-up video on NPV IRR payback scenarios as well, for a deeper understanding: ua-cam.com/video/1ZTIwmn1Cm0/v-deo.html
Thank you so much, I'm writing tomorrow and I was just lost, everything is clear now. Thank you again x
You're welcome! :-) My follow-up video on WACC vs IRR might also be helpful for you: ua-cam.com/video/ZuH_q5crAWg/v-deo.html
my dear friend this is one of the best ways you have explained these concepts , they don't explain this as good in universities and professional finance courses really kudos to you mate .
Thank you so much for the kind words, Kaustubh! I approach each and every video from the real world perspective. Please subscribe to the channel, and take a look at the NPV IRR WACC playlist for more related videos: ua-cam.com/video/N-lN5xORIwc/v-deo.html
Very well explained! Thank you so much for the video!
Great to hear that, Ashwin! Thank you for watching, and welcome to the channel. :-)
thank you so much for this video, I spent 3 Hr trying to understand this on the MBA module material, but now its cristal clear after seeing this video
You're welcome! Great to hear that, Omar. I have videos for you on related topics like WACC as well ua-cam.com/video/1O-DbtVueMw/v-deo.html Please spread the word to fellow students!
Another concise and well explained video. Thank you!
Thank you! Happy to hear you enjoyed it.
You made it all make sense! Thank you!
Wonderful to hear that!!! Thank you for watching and commenting. 😊
My brain hurts.
Thank you, very clearly explained!!!
Thank you for watching and commenting, Tomas! I made a follow-up video last week, playing around with several scenarios of investment and benefits. Hope you like that one as well! ua-cam.com/video/1ZTIwmn1Cm0/v-deo.html
Clear and concise! Thank you!!!
Nice to hear that! Thank you, Angus!
I finally understand the difference - thank you!!
Great to hear that, Todd! Happy to help. :-)
I did not understand where does this 35, 117 en (46) come from? how has he this calculated
I don't know why, but I'm kinda addicted to the accent! lol thanks for the useful information! learned a lot!
Thanks for watching!
This video is very crucial to understand the core concept of AFM....thank you!
Thank you very much for the kind words! Related concepts like WACC are discussed in this playlist: ua-cam.com/video/1O-DbtVueMw/v-deo.html
I can't thank you enough about this video, the concept of NPV which I heard yesterday which the professor was not able to explain and left me confused are now solved for just six minute video. although your calculation of IRR is not clear but will use Excel as I know basics of Excel. thank you so much
Thank you for the compliments, Rayso! Yes, I agree I could have spent more time on IRR in this video. I made follow-up videos to go deeper into IRR, compiled in this playlist: ua-cam.com/video/aS8XHZ6NM3U/v-deo.html
The way how we solve it in business class way back in uni was a shortcut so after months, it was already forgoten. Thank you for explaning the basis of it. Def understand it now. 😊
Glad it helped! Here are some more examples to really "get" the deeper ideas behind the calculations ua-cam.com/video/1ZTIwmn1Cm0/v-deo.html
Excellent presentation. Concise and precise.
Thank you very much, Ken! Great to hear that. I think you might also enjoy the related video on ROI versus payback: ua-cam.com/video/o4of1uNSRis/v-deo.html
I finally found your video, which helps me a lot!
Glad to hear it! More NPV, IRR, payback, WACC and related concepts discussed in this playlist: ua-cam.com/video/N-lN5xORIwc/v-deo.html
_Your videos r_ *super.* _Concise and to the point of understanding._ *Tysm*
You're welcome, James! Thank you for watching and commenting.
Simple and good explanation. Thank you.
You're welcome! :-)
Shortest and best way to understand the concept. Thanks
Glad it was helpful!
You deserve a cookie. Thank you very much for this explanation.
You're welcome! Opportunity to buy me cookies, a cup of tea, etc. at: ua-cam.com/channels/QQJnyU8fALcOqqpyyIN4sg.htmljoin ;-)
Great video. Thanks for explaining this with a simple example.
Glad it was helpful, John!
I appreciate your work on these videos and making it easier for others to understand. On the things I didn’t understand you answered those who had questions below. Great work!
Wonderful to hear that, Eric! Thank you for watching and commenting. The questions from viewers indeed helped to clarify some points. I have made a video on NPV and IRR scenarios as a follow-up: ua-cam.com/video/1ZTIwmn1Cm0/v-deo.html
Perfect! Thank you!
You're welcome! I have related videos on payback method and ROI on my channel as well: ua-cam.com/video/o4of1uNSRis/v-deo.html
awesome explanation. Thank you !
Good to hear that. Glad it was helpful! Videos on related topics like WACC and discounted payback are available in this playlist: ua-cam.com/video/1O-DbtVueMw/v-deo.html&pp=gAQBiAQB
Really explained well. I got in the first attempt. Before watching this video, I watched other videos, but I couldn't understand. Thank you for your efforts!!
You're welcome, Nilesh! Very happy to hear that. I think you will like the related video on NPV and IRR scenarios as well: ua-cam.com/video/1ZTIwmn1Cm0/v-deo.html
I did not understand where does this 35, 117 en (46) come from? how has he this calculated
Thank you very much for this video! It is very clear and easy to understand.
Glad to hear that, Abheran! Related concepts like WACC, payback period and crossover rate are covered in this playlist: ua-cam.com/video/N-lN5xORIwc/v-deo.html
Thank u so much sir..
Understood many things what didn’t in class....
Thank you, Rummana! Happy to hear that. And well done searching for additional information to expand what was covered in class! I think you will like my NPV/IRR scenarios video as well that covers these concepts with more examples: ua-cam.com/video/1ZTIwmn1Cm0/v-deo.html
Thank you for a clear concise and easy to understand vid 😁
Very happy to hear that! Thank you.
Dude your videos are really good.
I appreciate your assistance tremendously
Thank you, Kevin! That's awesome. Working on my next video right now. Happy to help!
Thank you for explaining this is a simple no fuss manner.
Yeah, let's get it done in 5 minutes, if we can, and move on to the next topic. 😎
so so lucid! THANK YOU
Thank you, Meena! Related topics are in this playlist: ua-cam.com/video/N-lN5xORIwc/v-deo.html
Thank you that make sense now!!!
Great! Happy to hear that. :-)
Concise and straight to the point. Thank you.
Exactly, Olayinka! :-) Here's the link to related videos on capital budgeting that could be helpful for you as well ua-cam.com/video/1O-DbtVueMw/v-deo.html
@@TheFinanceStoryteller Thanks alot.
@@olayinkaafun5469 You're welcome! Let me know if you think any topics are missing, I am always looking for good topics for new videos.
This is a simple and great explanation. Thank you so much :)
Glad you liked it, Janifah! Thank you for watching and commenting. My follow-up video on NPV IR payback period scenarios might also be useful for you to watch: ua-cam.com/video/1ZTIwmn1Cm0/v-deo.html
this helped so much, you're a saviour!
Happy to hear that, Saodat! Please spread the word!
Thanks, really enlightened video, thumps up!
Wow, thank you so much! Happy to hear that.
you've made complicated things, simple.... well done✊
Thanks a lot! 😊 Very happy to hear that!
Very helpful, thank you!
You're welcome, Raquel! The sequel to this video might also be useful for you. It covers various scenarios of investment level and benefits: ua-cam.com/video/1ZTIwmn1Cm0/v-deo.html
The best explanation. Thank you !
Thank you very much for the compliment. Related topics like WACC and payback period are discussed in this playlist: ua-cam.com/video/1O-DbtVueMw/v-deo.html&pp=gAQBiAQB
Excellent presentation, Thanks so much !!!
You are welcome! 😊 Please spread the word!
i will bet a $10000 if the presenter is not from arabic descent. the accent is absolutely nourishing and left your spirit.
Personally, I enjoy good videos regardless of the accent! ;-) But as you are asking, the accent is Dutch (i.e. from the Netherlands). I did spend a good amount of time delivering training in Abu Dhabi and Dubai, so had the pleasure of visiting the Middle East multiple times.
Thank you for your easy and clear explanation.
You're welcome!!!! Thank you for watching and commenting.
Very clearly explained - thanks kindly!
You're very welcome!
thanks a lot! this is much clearer than lecture!
Great to hear that, Steven! Thank you for watching. I also cover related topics like WACC, crossover rate, and profitability index on my channel.
Wow very clearance of concept. You make it in simply.
Thank you! Glad you enjoyed it. :-)
You really do a great job explaining this. It had been years since I learned this in business school. Very good refresher
Glad it was helpful! I have related videos on payback period, WACC, etc. as well for you as a refresher: ua-cam.com/video/1O-DbtVueMw/v-deo.html
The best breakdown i have seen.
Thank you, Cortney! That is wonderful to hear. More capital budgeting videos in this playlist: ua-cam.com/video/N-lN5xORIwc/v-deo.html
Thank you, this was a very clear explanation or IRR.
You're welcome! Happy to hear that. Related topics in this playlist: ua-cam.com/video/N-lN5xORIwc/v-deo.html
omg you explained this so well... im so amazed!!!! THANK YOUUUUUUUUUU
Happy to help, Cherie!!! :-)
@@TheFinanceStoryteller Subscribed & liked. keep it up :-)!!!
Wonderful. :-) Please tell all your friends!
Thank you bro you deserve a like
Happy to help! Have a look at the related videos in the NPV IRR WACC playlist as well, there could be more useful stuff in there: ua-cam.com/video/1O-DbtVueMw/v-deo.html&pp=gAQBiAQB
Thanks so much. helped me alot.
Great to hear that. The related video on payback period might also be interesting for you to watch: ua-cam.com/video/FJjGi7gsK3A/v-deo.html
Pretty good, thank you!!!
Happy to hear that, Benedict! Take a look at my capital budgeting playlist for related topics: ua-cam.com/video/N-lN5xORIwc/v-deo.html
clearly understood, thx
Thank you, Leo!
Perfect!!! I understand what NPV and IRR are!
Great to hear that! Thank you! :-)
I did not understand where does this 35, 117 en (46) come from? how has he this calculated
@@abidullahkhamosh2099 For NRV project A 35
333+278+231+193-1000=35
Same calculation for project B and C
Very clear. Thanks!
You're welcome, Angus! Happy to help. :-)
I hate math and I'm sociology major but I understood this guy is a genius
Thank you, John! Happy to help. 😎
Thanks a lot Philip De Vroe!! 😊
You're welcome, Poorvi Radhakrishnan! :-) Thank you for watching.
Thank you very much for good explanation
You're welcome! :-)
Thank you so much...you’re the best
You're welcome, Tumi! Welcome to the channel, please subscribe.
Thanks... simple to understand
You're welcome! Happy to hear that! :-)
@@TheFinanceStoryteller it's my honour...
Thanks a lot for sharing, very educational and useful
My pleasure! Related concepts like WACC are discussed in this playlist: ua-cam.com/video/1O-DbtVueMw/v-deo.html&pp=gAQBiAQB Please spread the word to friends and colleagues.
Very nicely explained.Love your videos.
Thank you so much, Mamta! 🙂 That is nice to hear. Please spread the word!
Very well explained
Thanks for liking
Excellent, thanks ❤
You're welcome 😊 Related concepts are discussed in the NPV IRR WACC playlist: ua-cam.com/video/1O-DbtVueMw/v-deo.html&pp=gAQBiAQB
Thank you so much, this is really helpful :-)
You're very welcome! Great to hear that.
GREAT VIDEO THX U!
You're welcome, Jonathan! Thanks for the feedback. :-)
You made it all. Am loving it🔥👌
Yes! Thank you!
WoW !! Thank you very much.
You're welcome, Satish! Glad to hear you liked it.
Your explanation is beyond wonderful ❤️ Thank you brother !!
@@bobbydreamsforu If you liked this video, then I recommend the related videos in the NPV IRR WACC playlist as well: ua-cam.com/video/N-lN5xORIwc/v-deo.html
Yes, very good stuff.
Glad you enjoyed it, Michael!
great explanation
Thank you!!! :-)
Thank you so much!
You're welcome, Valerie! :-)
Perfect
Thank you! Made a follow-up video on how to calculate NPV in Excel: ua-cam.com/video/jQ_NDQ2qVVA/v-deo.html
Great video all clear
Thank you for watching and commenting!
thank you so much!
You're welcome, Tina! :-)
Thanks clear explanation.
Great to hear that! Thank you! Please subscribe.
@@TheFinanceStoryteller Already done, Hit the bell icon too.
very good explanation, thank you
Nice to hear that, Motalib! Thank you for watching and commenting.
Great content
Thank you! Please share the channel/videos with friends and colleagues.
thank for sharing
Thank you, Anna! Please subscribe to the channel, and share the video with friends and colleagues.
Very informative.
Glad it was helpful!
Wahoo I want to say thank you, your explanation is the best for me, really easy, 💖🙏thank you.
I will check all your content. 👍1,000
You're welcome 😊 I have related videos on WACC, profitability index, etc. as well for you: ua-cam.com/video/1O-DbtVueMw/v-deo.html
really appreciated!
You're welcome, Sarwat! Happy to help!