Ranking and Optimal Selection of Investments with Internal Rate of Return and Benefit-Cost Ratio: A Revision
Contaduría y Administración, No. 236, pp. 29-51, January-April 2012
24 Pages Posted: 18 Dec 2010 Last revised: 2 Jun 2013
Date Written: December 16, 2010
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.
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
Suggested Citation: Suggested Citation