A note on the sensitivity analysis of the internal rate of return

Marco Percoco and Emanuele Borgonovo

International Journal of Production Economics, 2012, vol. 135, issue 1, 526-529

Abstract: In this note we discuss the sensitivity analysis of the internal rates of return (IRR). We show that the use of partial derivatives can be misleading in the identification of key drivers of an investment project's performance. To remedy this shortcoming, we propose the use of an alternative sensitivity measure called the Differential Importance Measure. The analysis shows that, even if the theoretical conditions for using the Net Present Value or the IRR as valuation criteria apply, the sensitivity analysis results for the two indicators may differ.

Keywords: Investment projects; Internal rate of return; Sensitivity analysis (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:135:y:2012:i:1:p:526-529

DOI: 10.1016/j.ijpe.2011.09.002

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