NPV vs IRR

input cell
Investment 1 (Inv Opportunity)
Date Year Cash flows Cumul cash flows Return Present value (year)

01/01/22 1 $ -100.00 $ -100.00 $ -100.00

01/01/23 2 $ -100.00 $ -200.00 $ -84.82
01/01/24 3 $ 100.00 $ -100.00 $ 71.94
31/12/24 4 $ 100.00 $ - $ 61.02
END 31/12/25 5 $ 100.00 $ 100.00 $ 100.00 $ 51.75

Invested assets -200 (Investment 1)

Discount Rate 18% input discount rate
IRR 17.9%
NPV $ -0.11 ---> $ -0.11
NPV margin -0.05%
Margin 50%

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PV (year) cumulative
$150.00
$100.00
$50.00
$- $-0.11
1 2 3 4 5
$-50.00 $-51.86
$-100.00 $-100.00 $-112.88
$-150.00
$-184.82
$-200.00
$-250.00

Cumulative PV
 Investment 2 (Market discount rate)
Cumulative PV Date Year Cashflow (OutCashflow (inflow)

$ -100.00 01/01/22 1 $ -100.00 $ -

$ -184.82 01/01/23 2 $ -100.00 $ -
$ -112.88 01/01/24 3 $ - $ 100.00
$ -51.86 31/12/24 4 $ - $ 100.00
$ -0.11 31/12/25 5 $ - $ 100.00

Invested assets -200 (Investment 2)

Discount Rate 18% input discount rate
IRR 17.9%
calculated NPV NPV $ 0.00
NPV margin 0.00%
Margin 50%

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eak the chart. Editing this shape or saving this workbook into a different file format will pe

PV (year) cumulative
$150.00
$100.00
$50.00

$-0.11 $-
5 1 2 3
1.86 $-50.00
$-100.00 $-100.00 $-112.88
$-150.00
$-184.82
$-200.00
$-250.00

Cumulative PV
 Cumul cash flows Invested assets/capitReturn Present value (year) Cumulative PV

$ -100.00 $ 100.00 $ -100.00 $ -100.00

$ -200.00 $ 217.90 $ -84.82 $ -184.82
$ -100.00 $ 156.90 $ 71.94 $ -112.88
$ - $ 84.99 $ 61.02 $ -51.86
$ 100.00 $ 0.20 $ 100.20 $ 51.86 $ -

Explanation: Investment 1

In this investment plan (left), we want to see the financial r

IRR and Profit margin and NPV Profit margin), for an invest
flow. Every negative cash flow is invested and every positiv
an important factor.
In the simulation, we assume that in the first 4 years, in the
amount and we recover this in the last 2 years, and we can
different simulations. If the series of cash flow is -100, -100
If we setup a discount rate less than IRR, we will see the NP
cel. makes sense because I don't find better opportunities in th
is also positive as it is based on what is the present value o
o a different file format will permanently break the chart. approaches IRR, we will see NPV reducing to zero and NPV
of the profit which in this case is a healthy 50%). This is wh
come into play. If I use the discount rate to take into accoun
a gross margin is 50%, if I have a discount rate of 17.9%, I w
zero, as I won't recover my overhead costs. So I won't go in

Explanation: Investment 2

In this investment plan (right), we use the same sums inves

interests/yields as per the market discount rate. Hence, eve
and interests are matured on the overall invested sum in an
calculated for the discount rate shall be zero, regardless of
the interest (the market interest).
Regardless of the profit and IRR, the NPV calculated for this
by definition, NPV is the present value of a series of future
discount rate), and if we use the market interest as discoun
better (or worse) by investing and obtaining the market rat
(discount rate) in NPV exactly the market rate.
V (year) cumulative

$-
3 4 5
$-51.86

$-112.88

84.82

Cumulative PV
 XIRR vector

$ -100.00
$ -100.00
$ 100.00
$ 100.00
$ 100.20

e want to see the financial returns (measured in term of NPV,

Profit margin), for an investment resulting in a series of cash
s invested and every positive cash flow is a return. Time plays

hat in the first 4 years, in the first 2 we invest the same

the last 2 years, and we can setup the final year return to do
es of cash flow is -100, -100, 100, 100, 100, IRR will be 17.9%.
than IRR, we will see the NPV is positive. This investment
nd better opportunities in the market. The NPV profit margin
what is the present value of my returns. As discount rate
V reducing to zero and NPV profit margin as well (regardless
s a healthy 50%). This is where (I guess) Gross and Net profit
ount rate to take into account my overhead costs, then even if
a discount rate of 17.9%, I will have a net (NPV) margin of
rhead costs. So I won't go into this investment plan.

we use the same sums invested assuming they give

ket discount rate. Hence, every negative cash flow is invested
he overall invested sum in any year. By definition, the NPV
shall be zero, regardless of the IRR which shall be equal to
t).
, the NPV calculated for this investment plan is zero because
t value of a series of future cash flow (for the chosen
e market interest as discount, I am not getting anything
nd obtaining the market rate returns using as benchmark
he market rate.
 IRR 2 periods IRR 3 periods

Cash flow Cash flow

1 $ -100.00 1 $ -100.00 1
2 $ 110.00 2 $ -100.00 2
3 $ 220.00 3

IRR 10.00% IRR 6.52% IRR

NPV
10%

Average annual profit

7.5%

S/S0=(1+i)^n
1+i=(S/S0)^(1/n)
i=(S/S0)^(1/n)-1
 IRR 3 periods with yearly reinvestments IRR 3 periods with yearly dividends/interests

10% 10%

Cash flow Cumul inv Interests Cash flow Cumul inv Interests
$ -100.00 $ 100.00 1 $ -100.00 $ 100.00
$ -100.00 $ 210.00 $ 10.00 2 $ -90.00 $ 200.00 $ 10.00
$ 231.00 $ 231.00 $ 21.00 3 $ 220.00 $ 220.00 $ 20.00

10.00% IRR 10.00%

$ -0.00 NPV $ -0.00

10%

Average annual profit Average annual profit

4.9%

S/S0=(1+i)^n
1+i=(S/S0)^(1/n)
i=(S/S0)^(1/n)-1
dividends/interests