Ranking Investments with Internal Rate of Return and Benefit – Cost Ratio: A Revision

Abstract:     
The purpose of this paper is to present a procedure to include the implicit assumptions of Net Present Value NPV in the Internal Rate of Return, IRR, and the profitability index (benefit-cost ratio B/CR). The resulting indicators are the weighted IRR (WIRR) and the expanded B/CR (EB/CR). These two desirability measures have the property to coincide with the NPV ranking for investment analysis and hence, will maximize value. Examples are presented.

Number of Pages in PDF File: 24

Keywords: Net Present Value, NPV, Internal Rate of Return, IRR, Benefit–Cost Ratio, B/CR, Profitability Index, NPV Assumptions

JEL Classification: D92, E22, E31, G31

Accepted Paper Series