The internal rate of return (or expected return on a project) is the discount rate that would result in a net present value of zero. 1 Since the NPV
In finance, the net present value (NPV) or net present worth (NPW) is defined as the sum of the present values (PVs) of incoming and outgoing cash flows over a period of time. Incoming and outgoing cash flows can also be described as benefit and cost cash flows, respectively.
The internal rate of return (IRR) or economic rate of return (ERR) is a method of calculating rate of return. The term internal refers to the fact that its calculation does not incorporate environmental factors (e.g., the interest rate or inflation).
Full Answer
NPV is a function of required rate of return and cash flows. If the required rate of return is increased the NPV will be reduced. Even the NPV goes to negative if the required rate of return is more. PI also moves in the same direction as the NPV.
Net Present Value ( NPV ): Net Present Value is the difference between the sum of the present values of the future cash flows of the project and the initial cost of the project. Companies use weighted average cost of capital as the discount rate to calculate the NPV.
Under the NPV the reinvestment rate is same as the required rate of return. Under the IRR the reinvestment rate is the Internal Rate of Return (IRR). NPV is better than IRR, since the required rate of return is nothing but the cost of capital, where as the IRR is not equal to cost of capital. It may be greater than the cost of capital or less than the cost of capital.
A change in required rate of return will affect the decision, but it will not affect the IRR. IRR will be the same whether the required rate of return is 15% or 20% or 25%. But a change in required rate of return affects the decision.
One of the most problematic issues in performance monitoring is the definition of appropriate targets. For example, the information that participants have an average 50 per cent employment rate in the year following programme participation has no value as a measure of performance per se; it needs to be compared against another value. Outcomes can be measured against targets (i.e. particular values specified for an indicator to be accomplished in a specific timeframe) or
Employment programmes usually target individuals who are unemployed according to ILO standards (without work, looking for work and available to work). Registering with the Public Employment Service (PES) is usually considered sufficient for an individual to comply with the three mentioned criteria. Recently, employment programmes started to target individuals that are in the potential labour force, but do not comply with all the criteria of the unemployment definition.2 These individuals (schematically presented in the Figure below) may be targeted by employment programmes aimed at increasing their labour market attachment.
theory of change describes how an intervention will deliver the planned results. A causal/result chain (or logical framework) outlines how the sequence of inputs, activities and outputs of a programme will attain specific outcomes (objectives). This in turn will contribute to the achievement of the overall aim. A causal chain maps: (i) inputs (financial, human and other resources); (ii) activities (actions or work performed to translate inputs into outputs); (iii) outputs (goods produced and services delivered); (iv) outcomes (use of outputs by the target groups); and (v) aim (or final, long-term outcome of the intervention).
Youth employment programmes, like any other type of public policy intervention, are designed to change the current situation of the target group and achieve specific results, like increasing employment or reducing unemployment. The key policy question is whether the planned results (outcomes) were actually achieved. Often, in fact, the attention of policy-makers and programme managers is focused on inputs (e.g. the human and financial resources used to deliver a programme) and outputs (e.g. number of participants), rather than on whether the programme is achieving its intended outcomes (e.g. participants employed or with the skills needed to get productive jobs).