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Multiple-Interest-Rate Analysis Demonstrates Why the IRR Pitfalls Are Irrelevant and Provides a Better Reason to Prefer NPV as an Investment Criterion

Michael Osborne ()

Chapter 5 in Multiple Interest Rate Analysis: Theory and Applications, 2014, pp 61-81 from Palgrave Macmillan

Abstract: Abstract Multiple-interest-rate analysis is employed to derive a new, dual equation for NPV. The analytical device of a quantum of value enables the new equation to demonstrate that the fourth IRR pitfall concerning non-flat yield curves is irrelevant. The equation supplies an alternative reason to the IRR pitfalls for preferring NPV to IRR as an investment criterion, and suggests that textbooks citing the IRR pitfalls as reasons to prefer NPV require revision.

Keywords: Capital budgeting; complex number; internal rate of return; IRR; investment appraisal; multiple; net present value; NPV; pitfall; yield curve (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1057/9781137372772_5

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Handle: RePEc:pal:palchp:978-1-137-37277-2_5