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3 Decision Methods: Npv, Irr and Others

53 Pages Posted: 14 Feb 2006 Last revised: 3 Mar 2013

Ignacio Velez-Pareja

Grupo Consultor CAV Capital Advisory & Valuation

Date Written: February 10, 2006


This is a course material from the book Investment Decision Making. For Firm and Project Valuation. The book is originally in Spanish and is untitled as Decisiones de inversión. Para la valoración financiera de proyectos y empresas.

Chapter Three includes the study of different method for financial decision making. This includes the Net Present Value, NPV, Internal Rate of Return, IRR, and the Benefit - Cost Ratio. We study the implicit assumptions in each of the methods, the limitations and advantages in using each method. The selection of projects with capital rationing is included in this chapter. As a complement, we study in this chapter other methods that do not take into account the time value of money.

Notes: Downloadable document is in Spanish.

Keywords: NPV, IRR, Cost-Benefit Ratio, present value, capital rationing, payback period

JEL Classification: G31

Suggested Citation

Velez-Pareja, Ignacio, 3 Decision Methods: Npv, Irr and Others (February 10, 2006). Available at SSRN: or

Ignacio Velez-Pareja (Contact Author)

Grupo Consultor CAV Capital Advisory & Valuation ( email )

Ave Miramar # 18-93 Apt 6A
+573112333074 (Phone)


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