The IRR provides a percentage figure that can readily be compared to other forms of investment available from financial institutions etc. with returns quoted in percentage terms. However, it doesn't discriminate between the absolute size of the return to the shareholder in the way that NPV calculations based on the cost of capital do and, it is perhaps less suitable for deciding between alternative investment projects where the objective is to maximise the shareholders' wealth.

Non-Discounting Techniques

Because both of the discounting techniques (NPV and IRR) take into consideration the important opportunity cost involved in investing funds in a long-term project they provide a theoretically sound basis on which to evaluate a stream of cash flows.

However, in practice much simpler techniques that do not take into account the time value of money are frequently used. These 'non-discounting techniques' include the most frequently applied appraisal technique: payback period estimation.

Payback Period

The payback period of a project is simply the time it takes for a project's cumulative positive cash flows to equal the initial cash outlay.

Initial Investment £10,000
Year	Cash Flow	Cumulative	Shortfall
1	3,000	3,000	7,000
2	5,000	8,000	2,000
3	9,000	17,000