NPV vs IRR vs Payback Period
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Editorial verification: Examples on this page are checked against FutureCalc core formulas before publish. Source: cross-checked with OpenStax TVM basics and Investor.gov investing basics.
NPV rule
Accept projects with NPV ≥ 0 at the opportunity cost of capital. Compute with the NPV calculator.
IRR rule
Accept when IRR exceeds the hurdle rate. Solve with the IRR calculator. IRR ignores scale — a tiny project can show a huge IRR but tiny NPV.
Payback period
Payback counts years until cumulative cash covers the outlay. It ignores time value unless you use discounted payback — prefer NPV for ranking.
When NPV and IRR disagree
Non-conventional cash flows, mutually exclusive projects, and different sizes/timings can flip rankings. Default to NPV and document the discount rate assumption.