Please explain application of IRR &NPV in share investment given company's prospectus in a public offer?

IRR refers to the Internal Rate of Return. This is used to calculate the profitablility of a venture in both the short and long term.

NPV or Net Present Value is the current value of an investment made some time ago. It takes into account the principal and the return so far.

NPV is NOT the current value of an investment made in the past. NPV is the current value of a series of cash flows to occur in the future discounted at a selected rate of return (the discount rate). In other words, what would you pay for a defined series of future cash flows if you wanted to earn a return equal to the discount rate.

The IRR is the discount rate that would give you a current value (net present value) of zero.

Answer 2 is absolutely right. Another interesting relationship between IRR and NPV comes in the financing decision. Since your cost of capital depends on the source of the financing and the risk of the cash flows to the provider of the financing, you can use IRR to estimate how expensive your funding could be and still have a positive NPV project. For example, you have an NPV of $15,000, an IRR of 24% and a WACC of 15%. That means that, relative to the risk of the project, your capital could cost an additional 9 percentage points and still be profitable on a time-value basis.

One other interesting application is expected EVA (economic value added). Comparing WACC and IRR shows you what your benchmark EVA should be on the project (where EVA = Return on Capital - Cost of Capital). It allows you to go back and do a "variance analysis" on a project to see where the variance on returns comes from. This is an extrememly powerful tool.