Another, quite serious weakness is the multiple IRR problem. If the project's net present value amounts to USD 13, Before electronic spreadsheets, financial managers had to calculate it using trial and error, which was a long and complex process.
In event of such a difference, a company should accept project s with higher NPV. Discount rate issues. However, if the IRR is less than the project's cost of capital, reject the project. This calculated rate considers the risk-free rate, market rates, market volatility betaand the firm's typical debt and equity weights.
IRR method gives you the advantage of knowing the actual returns of the money which you invested today. Calculating appropriate discount rate for cash flows is difficult.
During the computation of Net Present Value, the discount rate is assumed to be known, and it remains constant. The company can accept all projects with positive NPV.