A resolution to the NPV-IRR debate?
Two 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.
Year of publication: |
2010
|
---|---|
Authors: | Osborne, Michael J. |
Published in: |
The Quarterly Review of Economics and Finance. - Elsevier, ISSN 1062-9769. - Vol. 50.2010, 2, p. 234-239
|
Publisher: |
Elsevier |
Keywords: | Capital budgeting Complex plane Internal rate of return Net present value |
Saved in:
Online Resource
Saved in favorites
Similar items by person
-
Three Extensions to the Visualisation of Financial Concepts in the Complex Plane
Osborne, Michael J., (2001)
-
Visualising financial concepts in the complex plane
Osborne, Michael J., (2000)
-
On the computation of a formula for the duration of a bond that yields precise results
Osborne, Michael J., (2005)
- More ...