Net Present Value NPV - This is the discounted present value of future cashflows.

. The NPV calculates the value of all the yearly cash flows incurred or accrued throughout the life cycle of the project. Higher or positive the NPV value, more attractive is the proposed project. Internal Rate of Returns IRR- The discount rate, which achieves a net present value (NPV) equal to zero is known as the internal rate of return The factor that affects directly NPV is internal rate of return. If IRR have higher the NPV will be lower.
When evaluating investments in projects, must be estimate the relative profitability of each project. The profitability of the projects is compared by discounting their cash flows by their relative risk factor. The riskiness of a project is increased by its project risk, the current market risk, and any international risk exposure. There are some risks that can affect NPV and IRR.

Project Risk Some of the risk you face from a long-term investment is from the project itself. Project risk approximates the chance that the project will not be as profitable as expected due to errors from the company or from the project's initial evaluation. Project risk is increased when a company invests in a business that is not in its area of expertise. This increases the chance that management will not be able to properly value the project's cash flows and that the company will make errors while running the business. Market Risk Market risk measures the part of a project's risk from macroeconomic factors such as inflation and interest rates. Market risk is increased during a weak economy. A poor economy can decrease demand for a product, potentially turning a project unprofitable. Banks may be more reluctant to lend in a weak economy, raising the cost of capital for the project. High inflation can also be a problem at it weakens the long-term real return of the project. These factors increase the market risk of a project and contribute higher total risk. International Risk If a company's capital budget project will involve another country, it will be exposed to international risk. This entails political and exchange-rate risk of the project. If a project is based in a country with an unstable political structure, civil or political unrest could cause the entire investment to be lost. If currency rates move in an unfavorable direction, the company could face higher relative costs and lower relative gains. Domestic projects are completely devoid of this type of risk. The other factors that affect NPV and IRR are as follow. Factors affecting cash flows, including depreciation and tax effects, price level changes, and treatment of risk and uncertainty. Effects of different methods of financing on the selection of projects, including types of financing and risk, public policies on regulation and subsidies, the effects of project financial planning, and the interaction between operational and financial planning.

Political Factors like elections and changes of government, war, European Union expansion, assassination of political leaders Economic Factors like Interest rate, tax rates, stock exchange rates, economic boom or recession affect net present value and IRR. Technological Factors like technological changes if invest in technical business, how the internet has profoundly affected the fortunes of organizations like travel agents. How banks have responded by may be closing branches and encouraging their clients to do more and more banking online. Ecological Factors like carbon emission restrictions/taxes, more stringent laws governing air and water solution, concern about the possible effects of global warming also affect NPV. Legal Factors like health and safety legislation, equality legislation, regulation of industries and change in laws can also affect NPV and IRR