CONFLICT BETWEEN NET PRESENT VALUE AND INTERNAL RATE OF RETURN METHODS
CONFLICT BETWEEN NET PRESENT VALUE AND INTERNAL RATE OF RETURN METHODS

Summary/Abstract: In the conditions of lack of financial resources, ie the fact that decision makers do not have capital in unlimited amount, some profitable projects cannot be realized. In other words, the limited capital brings about the obligation to choose between one or more projects that are profitable, that is, it imposes the problem of ranking projects. In some situations, discount methods for assessing the economic efficiency of investment projects evaluate projects in different ways and may rank the same projects in different ways. In such cases, conflicts of different methods may occur. This paper will analyze conflict between net present value and internal rate of return methods. The net present value of the project is the value of the net cash flow in the entire period of the project, which is reduced to the present value by discounting. The internal rate of return method is a modern dynamic method of assessing the profitability of investment projects that is very often applied.

• Details
• Contents