NPV is most often better than IRR because it can handle uneven cash flow (-/+), is not subject to reinvest rate issue, take into account the size of the project and overall shareholder value creation. IRR is the concept behind YTM. It is also the basis of the money weighted return calculation. It is the rate the makes NPV 0. Holding period return is the most simple measure of return. (end value - beginning value + incremental cash flow) / Beginning value HPR = (p1-p0+D)/p0 EAY = {(HPY)^(365/days)} - 1 BDY = (Discount/Face)*(360/days) MMY = (360*BDY)/(360-(BDY*days)) alternatively, MMY = HPY * (360/days) BDY < MMY < EAY Money-weighted return is the IRR of the of the periodic cash flows. Time-weighted return is the compounded growth rate measured at each cash inflow/outflow point. (this the preferred measure for non-discretionary account performance measure because it is not influenced by unfavorable timing of cash inflows / outflows beyond the port mgrs control).
Useful for December candidates!
This is all in the readings…