Project appraisal measures

In this lesson

1. 0:00 Introduction to project appraisal measures
2. 0:14 Net Present Value concept and decision rules
3. 2:14 NPV worked example with calculation
4. 4:01 Concluding NPV and accepting investments
5. 4:25 Internal Rate of Return fundamentals
6. 5:37 IRR calculation using linear interpolation
7. 7:13 IRR worked example at two discount rates
8. 10:57 IRR benefits and limitations
9. 12:52 Modified IRR and reinvestment assumptions
10. 15:49 Modified IRR worked example and calculation

About this lesson

This lesson covers the theory and practical application of each appraisal method. Net Present Value shows the absolute gain or loss in today's money when you discount future cash flows at the cost of capital—positive NPV means accept, negative means reject. Internal Rate of Return expresses the project's return as a percentage, making it easier to communicate to stakeholders, but it has limitations when comparing projects of different sizes. Modified Internal Rate of Return addresses IRR's unrealistic assumption that reinvested cash flows earn the project's return, instead assuming they earn the company's minimum required rate—making it a more realistic measure. You'll work through complete examples for each technique, including how to use discount factor tables, apply linear interpolation to calculate IRR, and compound cash flows to find Modified IRR. The lesson emphasises practical decision-making: when to accept or reject investments, how to sense-check your calculations, and why NPV remains the theoretically superior tool despite IRR's communication advantages. Understanding the strengths and limitations of each method will help you choose the right technique for different scenarios in your exams and professional practice.

Duration: 19m