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Net present value and internal rate of return are both discounted cash flow methods and give recognition to the time value of money by discounting, that is, taking the present value of all future cash flows. Both methods require a discount rate or opportunity cost of capital. This rate is influenced by a number of factors such as presence of risk, availability of borrowing, relative profitability, minimum desired rate of return, nature of the business and purpose of capital investments. The calculation of discounted cash flows can involve the use of factor tables, exact formulas, financial calculators or computers.
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