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working paper

On the (Non-)Equivalence of IRR and NPV

Weber, Thomas A.  
2013

The internal rate of return (IRR) is generally considered inferior to the net present value (NPV) as a tool for evaluating and ranking projects, despite its inherently useful comparability to the cost of capital and the return of other investment opportunities. We introduce the "selective IRR", a return criterion which, as a selection of an extended set of possible IRRs, is NPV-consistent. The selective IRR always exists, is unique, easy to compute, and does not suer from drawbacks that befall the project investment rate, the only other known NPV-consistent return criterion.

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MTEI-WP-2013-001-Weber-revisedOct13.pdf

Type

Preprint

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Submitted version (Preprint)

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openaccess

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1.33 MB

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Adobe PDF

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