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A contribution to the NPV-IRR debate

Author

Listed:
  • Erio Castagnoli

    (Università Bocconi
    Accademia Nazionale Virgiliana)

  • Gino Favero

    (Università di Parma)

Abstract

This paper proposes a contribution to the century-old debate between npv and irr: we argue that the irr(s) of a project are the interest rate(s) where an agent may switch from finding the proje ct profitable to finding it detrimental (or the other way around). We propose a path to deal with the case when the agent’s reference rate is not unique, and we show how our interpretation accommodates most of the so-called flaws of the irr, even when it is not unique. We show that it is possible to measure the sensitivity of every irr of a project w.r.t. the exchanged amounts.

Suggested Citation

  • Erio Castagnoli & Gino Favero, 2025. "A contribution to the NPV-IRR debate," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 48(1), pages 153-174, June.
    • Handle: RePEc:spr:decfin:v:48:y:2025:i:1:d:10.1007_s10203-024-00494-6
    DOI: 10.1007/s10203-024-00494-6
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