I have just read the concept of both Net Present Worth (NPW) and the External Rate of Return (ERR). This is what I have understood of these two values:
NPW is the net discounted value of all the cash flows that occur throughout the life of project, while the discount rate is the MARR -- a rate that I have decided as a minimum rate of return for acceptance of a project. If NPW > 0, accept the project else reject.
ERR is the rate of return of the project when I reinvest the cash produced at a rate RR (Reinvestment Rate). This rate may be different than the ERR itself. If ERR > MARR, accept the project, else reject it.
I may have understood wrong, please correct me if I am wrong.
So both of the methods are used to make accept/reject decisions for the projects. Certainly there are perks of using one over the other, otherwise there would not be two distinct methods. Then under what conditions is one preferred over other? Or is one of the methods always better than the other in general? Why?