So let's say we're dealing with independent projects.

Well, now we simply compare the internal rate of return for the project with

the appropriate discount rate, given the project's risk, opportunity cost,

and the expectations about inflation, that is, the time value of money.

So we compare the internal rate of return with that discount rate that we would use

for standard NPV analysis.

And if the internal rate of return exceeds that rate,

then the project is deemed acceptable.

If it's less than that rate, then we reject the project.

And the reason for that is very simple to illustrate.

Let's assume that the required rate of return from the project was 10%.

We know that the internal rate of return is in excess of 21%,

so this project is deemed acceptable.

Why?

Well, you'll see that where the internal rate of return exceeds the required rate

of return, that also implies positive NPV.

So the two techniques, internal rate of return and NPV,

are telling you much the same thing.

One is using a dollar value, the other, the internal rate of return,

is using a percentage value, which managers quite often find easier to work with.