Evaluating the Accuracy of Net Present Value and Initial Rate of Return Investment Rules

DOI

10.2991/assehr.k.211209.215How to use a DOI?

Keywords

Net present value; Internal rate of return; Delayed investment; Multiple IRRs; No IRRs; Mutually exclusive projects

Abstract

The purpose of this paper is to compare the accuracy of two investment decision-making methods, Net present value (NPV) and Internal rate of return (IRR), using four different hypothetical investigations, and to briefly assess the limitations of the NPV method. The use of the IRR rule results in incorrect judgments in four situations: delayed investment, multiple IRRs, no IRRs, and mutually exclusive projects (different scales). However, the judgment method shows the sensitivity of the investment decision to the uncertainty of the cost of capital estimation in the case of delayed investment and two IRRs.

Copyright

© 2021 The Authors. Published by Atlantis Press International B.V.

Open Access

This is an open access article under the CC BY-NC license.

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TY  - CONF
AU  - Zhen Wang
PY  - 2021
DA  - 2021/12/15
TI  - Evaluating the Accuracy of Net Present Value and Initial Rate of Return Investment Rules
BT  - Proceedings of the 2021 3rd International Conference on Economic Management and Cultural Industry (ICEMCI 2021)
PB  - Atlantis Press
SP  - 1319
EP  - 1322
SN  - 2352-5428
UR  - https://doi.org/10.2991/assehr.k.211209.215
DO  - 10.2991/assehr.k.211209.215
ID  - Wang2021
ER  -