A resolution to the NPV-IRR debate?
AbstractTwo 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.
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Bibliographic InfoArticle provided by Elsevier in its journal The Quarterly Review of Economics and Finance.
Volume (Year): 50 (2010)
Issue (Month): 2 (May)
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Web page: http://www.elsevier.com/locate/inca/620167
Capital budgeting Complex plane Internal rate of return Net present value;
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