IRR is often compared to other financial metrics such as Net Present Value (NPV) and Payback Period. Here’s how they stack up:
NPV: While IRR gives a percentage return, NPV provides a dollar amount of the investment's profitability. NPV is generally preferred when comparing projects of different sizes. Payback Period: The payback period measures how long it takes to recover the initial investment. Unlike IRR, it does not account for the time value of money.