Non‐monotonic NPV Function Leads to Spurious NPVs and Multiple IRR Problems: A New Method that Resolves these Problems

Kannapiran C. Arjunan

Economic Papers, 2019, vol. 38, issue 1, 56-69

Abstract: The causes and effects of non‐monotonic NPV functions are evaluated and the results presented in this paper. Reinvestment of intermediate income causes non‐monotonic NPV function. Non‐monotonic NPV function not only leads to multiple IRRs but also to spurious NPVs. The capital amortisation (CAS) method used in this analysis transparently reveals if there is any reinvestment. A modified CAS method, discussed in this paper, eliminates the reinvestment and resolves the problems of non‐monotonic NPV function, reinvestment, spurious NPVs and multiple IRR. The current practice of using NPV as the preferred criterion, when there are multiple IRRs, is not appropriate.

Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/1759-3441.12239

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:econpa:v:38:y:2019:i:1:p:56-69

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0812-0439

Access Statistics for this article

Economic Papers is currently edited by Professor Guay Lim

More articles in Economic Papers from The Economic Society of Australia Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().