A contribution to the NPV-IRR debate

Erio Castagnoli and Gino Favero ()
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Erio Castagnoli: Università Bocconi
Gino Favero: Università di Parma

Decisions in Economics and Finance, 2025, vol. 48, issue 1, No 9, 153-174

Abstract: Abstract This paper proposes a contribution to the century-old debate between npv and irr: we argue that the irr(s) of a project are the interest rate(s) where an agent may switch from finding the proje ct profitable to finding it detrimental (or the other way around). We propose a path to deal with the case when the agent’s reference rate is not unique, and we show how our interpretation accommodates most of the so-called flaws of the irr, even when it is not unique. We show that it is possible to measure the sensitivity of every irr of a project w.r.t. the exchanged amounts.

Keywords: Capital budgeting; Internal rate of return; Net present value; Portfolio management (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10203-024-00494-6

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