A resolution to the NPV-IRR debate?
Michael Osborne ()
The Quarterly Review of Economics and Finance, 2010, vol. 50, issue 2, 234-239
Two criteria for choosing between capital investment projects are net present value (NPV) and internal rate of return (IRR). Sometimes they provide inconsistent rankings. This inconsistency sparked a debate about which criterion is better. The debate has lasted more than 100 years. This paper describes a new approach to the debate. The time value of money equation is a polynomial, and a polynomial of order n does not have a single root. It has n roots. The result of taking into account the n solutions for IRR is a new equation for NPV that suggests a resolution to the debate.
Keywords: Capital; budgeting; Complex; plane; Internal; rate; of; return; Net; present; value (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:50:y:2010:i:2:p:234-239
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