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On the (non-)equivalence of IRR and NPV

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  • Weber, Thomas A.

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.

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  • Weber, Thomas A., 2014. "On the (non-)equivalence of IRR and NPV," Journal of Mathematical Economics, Elsevier, vol. 52(C), pages 25-39.
    • Handle: RePEc:eee:mateco:v:52:y:2014:i:c:p:25-39
    DOI: 10.1016/j.jmateco.2014.03.006
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    Cited by:

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