Ranking Investments with Internal Rate of Return and Benefit – Cost Ratio: A Revision
December 16, 2010
Contaduría y Administración, No. 236, pp. 29-51, January-April 2012
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, G31Accepted Paper Series
Date posted: December 18, 2010 ; Last revised: February 8, 2012
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