Differences of NPV and Payback

NPV can discount each cash flow separately, making it a better option. Using NPV also works better when a project's discount rate is not known. ... If the IRR is higher than the discount rate, it's a good project to pursue. If a project's NPV is above zero, it's financially worthwhile.The difference between NPV and IRR. NPV and IRR are both used in the evaluation process for capital expenditures. Net present value (NPV) discounts the stream of expected cash flows associated with a proposed project to their current value, which presents a cash surplus or loss for the project.NPV also has an advantage over IRR when a project has non-normal cash flows. ... The NPV method will always lead to a singular correct accept-or-reject decision. In conclusion, NPV is a better method for evaluating mutually exclusive projects than the IRR method.The profitability index is calculated by dividing the present value of the project's future cash flows by the initial investment. A PI greater than 1.0 indicates that profitability is positive, while a PI of less than 1.0 indicates that the project will lose money.