Pregled bibliografske jedinice broj: 1087533
Internal rate of return method - a commonly used method with few advantages and many disadvantages?
Internal rate of return method - a commonly used method with few advantages and many disadvantages? // Conference Proceedings of the 4th Contemporary Issues in Economy & Technology – CIET 2020 / Kovačević, Tonko ; Akrap, Ivan (ur.).
Split: Sveučilišni odjel za stručne studije Sveučilišta u Splitu, 2020. str. 315-322 (predavanje, međunarodna recenzija, cjeloviti rad (in extenso), stručni)
CROSBI ID: 1087533 Za ispravke kontaktirajte CROSBI podršku putem web obrasca
Naslov
Internal rate of return method - a commonly used method with few advantages and many disadvantages?
Autori
Miletić, Marko ; Latinac, Domagoj
Vrsta, podvrsta i kategorija rada
Radovi u zbornicima skupova, cjeloviti rad (in extenso), stručni
Izvornik
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, 2020, 315-322
ISBN
978-953-7220-52-5
Skup
4th Contemporary Issues In Economy & Technology (CIET 2020)
Mjesto i datum
Split, Hrvatska, 29.05.2020
Vrsta sudjelovanja
Predavanje
Vrsta recenzije
Međunarodna recenzija
Ključne riječi
internal rate of return, net present value, capital budgeting, capital project
Sažetak
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.
Izvorni jezik
Engleski
Znanstvena područja
Ekonomija
POVEZANOST RADA
Ustanove:
Sveučilište u Splitu Sveučilišni odjel za stručne studije
Profili:
Marko Miletic
(autor)
