Internal Rate of Return (IRR) is the effective compound rate of interest which can be earned on the invested capital. If the IRR is greater than alternate investment with similar risk, then it is a worthwhile project. The typical hurdle rate is 12%
Net Present Value (NPV) is the current or the present value of the future cash flows (both inflow and outflow). The current value of a future cash flow depends on the time gap between today and the time of cash flow and discount rate. For e.g. if we anticipate a cash inflow of Rs. 100 after 2 years. NPV will determine the cashflow as on today (amount you will receive if you do not want to wait for 2 years at a particular discount rate). A profitable project is one where the NPV is positive.
Return on Investment (ROI) is the ratio of money gained or lost divided by the initial investment. A $1000 investment that results in interest of $50 has a 5% ROI. A project with a higher ROI gets prioritized
An application-oriented question on the topic along with responses can be seen below. The best answer was provided by Sudheer Chauhan on 27th December 2019.
Applause for all the respondents - Sudheer Chauhan, Shashikant Adlakha, Sudarshana Ramaiah, Nilesh Gham, Ajay Sharma