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A resolution to the NPV-IRR debate?

Michael Osborne ()

The Quarterly Review of Economics and Finance, 2010, vol. 50, issue 2, 234-239

Abstract: 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)
Date: 2010
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