Discounted Cash Flow versus Internal Rate of Return
A lot of people get confused about discounted cash flows (DCF) and its relation or difference to the net present value (NPV) and the internal rate of return (IRR). In fact, the internal rate of return and the net present value are a type of discounted cash flows analysis. Both the NPV and the IRR require taking estimated future payments from a project and discounting them into the Present Value (PV).
The difference in short between the NPV and the IRR is that the NPV shows a projects estimated return in monetary units and the internal rate of return reveals the percentage return needed to break even. In fact the IRR is the return needed for the NPV to hit 0. Further analysis of the difference between the NPV vs IRR can be found in the article NPV vs IRR.
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