Wikipedia

By now, some of you may be wondering what the difference is between the elements and characteristics of an investment. The answer is easy. The first is something that is part of all of them, the second is something that distinguishes them from others. In a car, an element is the wheels. A characteristic is the brand or color.
There is a lot of relationship between these three characteristics. The higher the risk, the higher the profitability, so we can say that the relationship is direct. However, the higher the liquidity, the lower the risk and also the lower the profitability, so in these two cases, the relationship is inverse.
It is important to measure these three characteristics. In reality, risk is not easy and is beyond the scope of this course. But we are going to give several methods to measure both profitability and liquidity. The methods will be divided into two groups depending on whether we take into account the passage of time, with the corresponding inflation or not. The first will be the dynamic ones. The second, and the ones we will start with, are the static ones.

10:32van, tir and payback. selectivity exerciseprofecarlosromeroyoutube – 10 apr 2021

These methods all suffer from the same defect: they do not take time into account. That is, they do not take into account in the calculations, the time at which the outflow or inflow of money occurs (and therefore, its different value).
Since the payback period does not measure or reflect all the dimensions that are significant for investment decision-making, it is not considered a complete method that can be used in general to measure the value of investments.
It represents a certain improvement over the static method, but it is still considered an incomplete method. However, it is undeniable that it provides some additional or complementary information for assessing the risk of investments when it is particularly difficult to predict the rate of depreciation of the investment, which is, moreover, quite frequent.
Since the N.A.V. depends very directly on the discount rate, the weak point of this method is the rate used to discount the money (always debatable). However, for the purpose of “homogenization”, the interest rate chosen will do its job regardless of the criteria used to fix it.

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Van excel

When we face the challenge of making new investments, we need to know in advance the chances of success, profitability, the benefits it will bring and the viability of the project we intend to start. For this we have the financial indicators. The NPV and IRR, (Net Present Value and Internal Rate of Return) respectively, are two financial indicators that allow us to analyze, in a safe way, the possible investment project and will help us to dissipate with precise information, those frequent doubts.
NPV and IRR are two concepts that, although very similar to each other, maintain differences that identify them and at the same time complement them to fulfill their function. This function consists of determining the benefit and profitability that any new project will bring us, once the investment has been made. With the analysis of parameters such as cash flow and terms of time, these two indicators will give us an important vision of the possibilities of success of the new project.

24:30van and pay-back (selectivity solved)econosublimeyoutube – 27 apr 2020

The Net Present Value (NPV) and Internal Rate of Return (IRR) parameters can help us to study the viability of certain projects at an economic level. However, it should be clear that these criteria do not always coincide, they have their limitations and their results could be inconsistent in some cases.
The first difference to mention is the way in which the profitability of a project is studied. The NPV is done in net absolute terms, that is, in monetary units, it indicates the value of the project today, while the IRR gives a relative measure, in percent.
These methods also differ in their treatment of cash flows. On the one hand, NPV considers the different maturities of cash flows, giving preference to the closest ones and thus reducing risk. It assumes that all flows are reinvested at the same rate K, the discount rate used in the analysis itself. On the other hand, the IRR does not consider that cash flows are periodically reinvested at the discount rate K, but at a rate of return r, overestimating the investment capacity of the project.

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