On the (non-)equivalence of IRR and NPV

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 suffer from drawbacks that befall the project investment rate, the only other known NPV-consistent return criterion. (C) 2014 Elsevier B.V. All rights reserved.


Published in:
Journal Of Mathematical Economics, 52, 25-39
Year:
2014
Publisher:
Lausanne, Elsevier Science Sa
ISSN:
0304-4068
Keywords:
Laboratories:




 Record created 2014-08-29, last modified 2018-09-13


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