 A simple intuitive NPV-IRR consistent rankingMoshe Ben-Horin and Yoram Kroll The Quarterly Review of Economics and Finance, 2017, vol. 66, issue C, 108-114 Abstract: Numerous recent studies have revisited the issue of the potential conflicting NPV-IRR ranking of competing investment projects. Most have suggested procedures that resolve the conflict after performing an iso-NPV modification of at least one of the cash flows. However, none has provided a general sufficient condition that guarantees the absence of NPV-IRR ranking conflict. We define dominance between cash flow streams and show that if the streams are conventional, dominance of one stream over another ascertains no NPV-IRR ranking conflict. While dominance among original cash flows may be relatively rare, iso-NPV cross-risk adjustment and iso-NPV modification of one cash flow stream may easily reveal such dominance even if the original projects are subject to different risks. The resulting implication is a practical, simple and economically intuitive procedure that guarantees consistent NPV-IRR ranking, while minimizing the implicit or explicit distortions of the original competing cash flow streams and their IRRs. Keywords: NPV; IRR; MIRR; AIRR; Cross-risk adjustment; Cash flow dominance (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:66:y:2017:i:c:p:108-114 DOI: 10.1016/j.qref.2017.01.004 Access Statistics for this article The Quarterly Review of Economics and Finance is currently edited by R. J. Arnould and J. E. Finnerty More articles in The Quarterly Review of Economics and Finance from Elsevier |
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