CLARIFYING THE AMBIGUITIES OF INTERNAL RATE OF RETURN METHOD VERSUS NET PRESENT VALUE METHOD FOR ANALYZING MUTUALLY EXCLUSIVE ALTERNATIVES

Many engineering economists have attempted to demonstrate that proper use of either the net present value method or the internal rate of return method to analyze mutually exclusive alternatives will result in identical and correct economic decisions. Unfortunatley, however, the internal rate of return method, even when properly applied, often will result in either ambiguous or incorrect economic decisions. The purpose of this paper is to illustrate more completely and definitively the ambiguities that can occur and to show that the 2 methods cannot be reconciled without additional calculations, which, by definition, go beyond the internal rate of return method as strictly and properly applied.

• Record URL:
  • http://onlinepubs.trb.org/Onlinepubs/trr/1975/550/550-005.pdf
• Summary URL:
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• Supplemental Notes:
  • Publication of this paper sponsored by Committee on Application of Economic Analysis to Transportation Problems. Distribution, posting, or copying of this PDF is strictly prohibited without written permission of the Transportation Research Board of the National Academy of Sciences. Unless otherwise indicated, all materials in this PDF are copyrighted by the National Academy of Sciences. Copyright © National Academy of Sciences. All rights reserved.
• Authors:
  • Wohl, Martin
• Discussers:
  • Bergmann, Dietrich R
• Conference:
  • 54th Annual Meeting of the Transportation Research Board
  • Location: Washington District of Columbia
  • Date: 1975-1-13 to 1975-1-17
• Publication Date: 1975

Media Info

• Media Type: Print
• Features: Figures; References;
• Pagination: pp 48-62
• Monograph Title: Application of Economic Analysis to Transportation Problems
• Serial:
  • Transportation Research Record
  • Issue Number: 550
  • Publisher: Transportation Research Board
  • ISSN: 0361-1981

Subject/Index Terms

• TRT Terms: Benefit cost analysis; Capital investments; Decision making; Economic analysis; Engineering economy; Present value; Rate of return; Transportation
• Subject Areas: Economics; Finance; Transportation (General);

Filing Info

• Accession Number: 00129480
• Record Type: Publication
• ISBN: 0309024560
• Files: TRIS, TRB
• Created Date: Mar 10 1976 12:00AM