Net present value (NPV) and internal rate of return (IRR) are both financial metrics used in capital budgeting to evaluate the profitability of an investment project.

Net present value is the difference between the present value of cash inflows and the present value of cash outflows over a period of time, using a specified discount rate. In other words, NPV measures the amount by which the present value of future cash inflows exceeds the present value of future cash outflows. A positive NPV indicates that the investment is profitable, while a negative NPV indicates that the investment is not profitable.

Internal rate of return is the discount rate at which the net present value of an investment project is equal to zero. In other words, IRR is the rate at which the present value of cash inflows equals the present value of cash outflows. A higher IRR indicates a more profitable investment.

The main difference between NPV and IRR is that NPV measures the absolute value of an investment in terms of dollars, while IRR measures the relative value of an investment in terms of percentage return. NPV is a more accurate measure of profitability, as it takes into account the time value of money and the cost of capital, while IRR may be misleading in certain situations, such as when there are multiple IRRs or when cash flows change sign multiple times.