Explain what payback period, NPV and IRR are in layman’s terms.

Question

Question

Explain what payback period, NPV and IRR are in layman’s terms.

Answer 1

Answer #1

Payback period is the period in which initial investment is recovered.

If the Actual Payback period < desired Payback period, then accept the project.

NPV = PV of Cash Inflows @WACC - PV of Cash Outflows @WACC.

IF the NPV of Project is >/= 0, then accept the project else reject the same.

IRR is the Rate of Ret that Project gives or IRR is the Rat which PV of Cash Inflows are equal to PV of Cash Outflows.

If IRR of Project is >/= WACC, accept the Project else reject the same.

Pls comment, if any further asssistane is required.

Answer 2

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