Internal rate of return method - a commonly used method with few advantages and many disadvantages? (CROSBI ID 695458)
Prilog sa skupa u zborniku | stručni rad | međunarodna recenzija
Podaci o odgovornosti
Miletić, Marko ; Latinac, Domagoj
engleski
Internal rate of return method - a commonly used method with few advantages and many disadvantages?
The financial textbooks state that it is always best to use the net present value (NPV) method when making investment decision. However, many studies show that in reality, managers prefer the internal rate of return (IRR) method to assess capital project. The IRR method, by definition, represents the average annual rate of return with assumption that that excess money from project will be reinvested at a rate that is exactly the same as IRR. The IRR method by definition points to the lack of the method itself, which is the reinvestment rate. IRR does have its allure, primarily because its result is shown as a percentage and it is easy to interpret it and compare it with other investments. That ease of comparison seems to outweigh components that most managers’ view as largely technical deficiencies. The aim of this paper is to show the main disadvantages of the IRR method, which one should be aware of when using the method itself. The paper also raises the question regarding the real cash flow upon which the IRR method is used, especially when not only equity, but also, debt is involved in financing the project. In such a case, for each project stakeholder, making a decision through the IRR method also requires the creation of a separate cash flow.
internal rate of return, net present value, capital budgeting, capital project
nije evidentirano
nije evidentirano
nije evidentirano
nije evidentirano
nije evidentirano
nije evidentirano
Podaci o prilogu
315-322.
2020.
objavljeno
Podaci o matičnoj publikaciji
Conference Proceedings of the 4th Contemporary Issues in Economy & Technology – CIET 2020
Kovačević, Tonko ; Akrap, Ivan
Split: Sveučilišni odjel za stručne studije Sveučilišta u Splitu
978-953-7220-52-5
Podaci o skupu
4th Contemporary Issues In Economy & Technology (CIET 2020)
predavanje
29.05.2020-29.05.2020
Split, Hrvatska