COMMON MISUNDERSTANDINGS ABOUT THE INTERNAL-RATE-OF-RETURN AND NET PRESENT VALUE ECONOMIC ANALYSIS METHODS (DISCUSSION AND CLOSURE)

Engineering economy and benefit/cost analysis manuals usually include the net present value and internal-rate-of-return methods for the analysis of mutually exclusive alternatives and, more times than not, contend that both methods, if properly applied, will invariably lead to the same economic decisions. However, it can be demonstrated that such a view is incorrect, as a general rule, and that use of the internal-rate-of-return method can lead to incorrect or ambiguous economic decisions. Accordingly, the purpose of this paper is to define the specific cases and situations in which application of the rate-of-return method will lead to incorrect or ambiguous economic decisions as well as to demonstrate why the net present value method is preferable and to explain the underlying reasons for the differences. Numerous examples will be employed to illustrate the various cases and underlying principles. (Author)

Media Info

  • Media Type: Print
  • Features: Figures; References; Tables;
  • Pagination: pp 1-19
  • Monograph Title: EVALUATING TRANSPORTATION PROPOSALS
  • Serial:

Subject/Index Terms

Filing Info

  • Accession Number: 00312460
  • Record Type: Publication
  • ISBN: 0309029864
  • Report/Paper Numbers: HS-028 842
  • Files: HSL, TRIS, TRB
  • Created Date: Oct 27 1985 12:00AM