On the (non-)equivalence of IRR and NPV

Thomas Weber

Journal of Mathematical Economics, 2014, vol. 52, issue C, 25-39

Abstract: 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.

Keywords: Capital budgeting; Internal rate of return; Net present value (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:52:y:2014:i:c:p:25-39

DOI: 10.1016/j.jmateco.2014.03.006

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