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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

In: Multiple Interest Rate Analysis: Theory and Applications

Author

Listed:
  • Michael Osborne

    (University of Sussex)

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.

Suggested Citation

  • Michael Osborne, 2014. "Multiple-Interest-Rate Analysis Demonstrates Why the IRR Pitfalls Are Irrelevant and Provides a Better Reason to Prefer NPV as an Investment Criterion," Palgrave Macmillan Books, in: Multiple Interest Rate Analysis: Theory and Applications, chapter 5, pages 61-81, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-137-37277-2_5
    DOI: 10.1057/9781137372772_5
    as

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