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Transforming the Net Present Value for a Comparable One

Author

Listed:
  • Mária Illés

    (University of Miskolc)

Abstract

This study examines the nature of net present value. It defines the economic content of the net present value and mathematically proves that definition is correct. This economic content inducts that the net present values are not comparable. The study systematically eliminates the distortion affects. The net present value transforms into a special kind of rate, namely, the modified difference between the factual and the required rate of return. The ranking list according to this transformed net present value corresponds to the list according to the internal rate of return. This is a new cognition and a very important correspondence.

Suggested Citation

  • Mária Illés, 2012. "Transforming the Net Present Value for a Comparable One," Theory Methodology Practice (TMP), Faculty of Economics, University of Miskolc, vol. 8(01), pages 24-32.
    • Handle: RePEc:mic:tmpjrn:v:8:y:2012:i:01:p:24-32
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    File URL: http://tmp.gtk.uni-miskolc.hu/volumes/2012/01/TMP_2012_01_04_Illes_Maria.pdf
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    References listed on IDEAS

    as
    1. Harold Bierman & Seymour Smidt, 1957. "Capital Budgeting and the Problem of Reinvesting Cash Proceeds," The Journal of Business, University of Chicago Press, vol. 30, pages 276-276.
    2. Kierulff, Herbert, 2008. "MIRR: A better measure," Business Horizons, Elsevier, vol. 51(4), pages 321-329.
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    More about this item

    Keywords

    business economics; capital budgeting decisions; net present value; internal rate of return; ranking; economic efficiency;
    All these keywords.

    JEL classification:

    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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