Internal Rate of Return

Internal Rate of Return (IRR) is the discount rate at which NPV is equal to Zero. The logic is If at a discount rate NPV is positive, it means that the actual rate of return is greater than the discount rate. If the NPV is negative, it means that the actual rate of return is less than the discount rate. If the NPV is Zero, it means that actual rate of return is neither greater than nor less than the discount rate. Hence IRR represents the actual rate of return earned on an investment.

A project will be selected if the IRR is greater than targeted rate of return
Between two project a project with higher IRR will be selected

Net Present Value

 Net Present Value (NPV) is the difference between sum of the present values (PVs) of the individual cash flows both inflows and outflows.NPV is used in capital budgeting to analyze the profitability of an investment or project. A project with positive NPV is feasible project.

Steps in calculation
Step 1: Identify the discount rate for finding present value
Step 2: Compute the PV of inflow
Step 3: Compute the PV of outflow
Step 4: NPV= PVI-PVO ( Step 2-Step 3)

Between two Project the one which gives higher NPV will be selected.

Time Value of Money

Time Value of Money (TVM) is the first and the most important of lessons that you should ever learn in finance.

• TVM is Money received today is greater than money received tomorrow because of money has time value. Eg. USD 100 today is not USD 100 a year later

• TVM is the reward for the postponement of consumption of money.
• TVM is aggregate of inflation rate, real time return from risk free investment and risk premium.

Inflation

Inflation means an overall increase in the prices of goods and services. It is a decrease in the value of a currency. The Currency used for purchase goods and services yesterday are not enough for today, the cost increased over and above time value of money.

It can be measured in three ways
1. Consumer Price Index (CPI)
    The Consumer Price Index measures prices of a selection of goods and services purchased by a "typical    consumer".The inflation rate is the percentage rate of change of a price index over time.CPI is the most common measurement.

2. Producer Price Indices (PPI)

    Measures the average change over time in the selling prices received by domestic producers for their output.

In India and the United States, an earlier version of the PPI was called the Wholesale Price Index.

3. Commodity Price Indices 

    Which measure the price of a selection of commodities. In the present commodity price indices are weighted by the relative importance of the components to the "all in" cost of an employee.

4.Core Price Indices

   Core Inflation is a measurement of non-volatile goods such as food and non-precious metals. It leaves out goods like oil because oil's price is subject to wild fluctuations.

Golden Rules of Accounting

It is classified in to three
1.REAL ACCOUNTS
Debit: The Receiver
Credit: The Giver
2.PERSONAL ACCOUNTS 
Debit:What Comes in 
Credit:What Goes out
3.NOMINAL ACCOUNTS
Debit:all Expenses and Lose 
Credit: all Incomes and Revenues