What is the better investment rule for investing in the financial markets – NPV or IRR? Why? Are there alternatives we should consider instead?

Authors

  • Jingxuan Lin

DOI:

https://doi.org/10.54691/bcpbm.v39i.4156

Keywords:

Mutually exclusive; Net present value; Internal rate of return; Cashflows; Discount rate; Time values.

Abstract

Based on the principal reasons behind economic problems, investors are forced to make decisions in order to ration out investments based on rules.

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References

Young, J. (2022, May 20). Mutually exclusive. Retrieved from investopia: https://www.investopedia.com/terms/m/mutuallyexclusive.asp.

Beers, B. (2021, July 08). Present Value vs. Net Present Value: What's the Difference? Retrieved from Investopia: https://www.investopedia.com/ask/answers/033115/what-difference-between-present-value-and-net-present-value.asp.

Team, C. (2022, january 30). CashFlow. Retrieved from Corporate Finance Institution: https://corporatefinanceinstitute.com/resources/knowledge/finance/cash-flow/.

Fernando, J. (2022, August 05). Net Present Value (NPV): What It Means and Steps to Calculate It. Retrieved from Investopia: https://www.investopedia.com/terms/n/npv.asp.

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Corporate Finance. (2011). In R. P. Peter Moles, Corporate Finance (p. 391). John Wiley & Sons Ltd.; European Edition.

Gallant, C. (2022, May 23). Net Present Value vs. Internal Rate of Return. Retrieved from Investopia: https://www.investopedia.com/ask/answers/05/npv-irr.asp.

Hayes, A. (2022, June 12). Modified Internal Rate of Return (MIRR). Retrieved from Investopia: https://www.investopedia.com/terms/m/mirr.asp

Chen, J. (2022, March 31). Profitability Index (PI): Definition, Components, and Formula. Retrieved from Investopia: https://www.investopedia.com/terms/p/profitability.asp

Kagan, J. (2022, June 03). Payback Period Explained, With the Formula and How to Calculate It. Retrieved from Investopia: https://www.investopedia.com/terms/p/paybackperiod.asp.

Hargrave, M. (2022, August 08). Weighted Average Cost of Capital (WACC)Explained with Formula and Example. Retrieved from Investopia: https://www.investopedia.com/terms/w/wacc.asp.

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Published

2023-02-22

How to Cite

Lin, J. (2023). What is the better investment rule for investing in the financial markets – NPV or IRR? Why? Are there alternatives we should consider instead?. BCP Business & Management, 39, 297-302. https://doi.org/10.54691/bcpbm.v39i.4156