Economics & Sociology

ISSN: 2071-789X eISSN: 2306-3459 DOI: 10.14254/2071-789X
Index PUBMS: f5512f57-a601-11e7-8f0e-080027f4daa0
Article information
Title: NET PRESENT VALUE VERSUS INTERNAL RATE OF RETURN
Issue: Vol. 4, No 1, 2011
Published date: 20-05-2011 (print) / 20-05-2011 (online)
Journal: Economics & Sociology
ISSN: 2071-789X, eISSN: 2306-3459
Authors: Lajos Juhász
Keywords: business economics, portfolio choice; investment decisions, financial forecasting and simulation, production; cost; capital, total factor, and multifactor productivity; capacity, criteria for decision-making under risk and uncertainty
DOI: 10.14254/2071-789X.2011/4-1/5
Index PUBMS: 211373de-aa13-11e7-8eae-080027f4daa0
Language: English
Pages: 46-53 (8)
JEL classification: M21, G11, G17, D24, D81
Website: https://www.economics-sociology.eu/?131,en_net-present-value-versus-internal-rate-of-return
Abstract

The economic professional literature which deals with investment decisions can be characterised in general that the net present value shows objective picture for the decision maker while the internal rate of return – not even mentioning other „competitors” – have numerous mistakes therefore its expressiveness is limited. The net present value – determined by the minimally expected yield (calculated interest rate) – shows that how amount of wealth growth have been accumulated by the investment during its duration, but it does not inform about the real profitability of capital investment. However the investment’s internal rate of return informs the decision maker that how works the real yield of long capital investment. As every investment economic method, the adaptation of internal rate of return could also have barriers. The barriers usually derive that the method is adapted in such ’model conditions’ where it is impossible to provide reliable information. This paper analyses that which method gives more relevant information for the manager either of two most often used investment methods.