Evaluation of Investment Projects in Case of Conflict Between the Internal Rate of Return and the Net Present Value Methods

Mackevičius, Jonas; Tomaševič, Vladislav

doi:10.15388/ekon.2010.0.962

Cited by 15 publications

(16 citation statements)

References 6 publications

(11 reference statements)

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“…When the NPV is zero, an extra interpretation is required. According to Mackevičius and Tomaševič (2010), because such an investment project has little effect, it is rarely offered in actuality [6]. The investor feels that even modest changes in the market condition might result in the project losing money.…”

Section: The Npv Methods Theorymentioning

confidence: 99%

“…The investor feels that even modest changes in the market condition might result in the project losing money. However, after such risk has been eliminated and there are no more profitable alternatives, the project might be pursued since the investor is uninterested in other possibilities that have the same impact [6]. When a company has a lot of possible projects, it uses the results to rank them from the highest to the lowest profitability index.…”

Section: The Npv Methods Theorymentioning

confidence: 99%

“…It is a metric that determines how profitable a project is. When a time value is taken into account, it is the discount rate at which the total present value of inflows equals the total present value of outflows [6]. The expression is below:…”

Section: A Comparison Between Npv and Other Evaluation Methodsmentioning

confidence: 99%

“…A simple example is if the total NPV values is lower than one of the project's NPV, then it is unfavourable to invest in such a portfolio. Also, this property allows different options for the same project to be compared [6]. It is probable that the options are mutually exclusive because only one kind of combination that an investor can choose.…”

Section: The Advantages Of Npvmentioning

confidence: 99%

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A Literature Review on the Net Present Value (NPV) Valuation Method

Shou¹

2022

Advances in Economics, Business and Management Research

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Evaluating different projects is an essential part of capital investment for the firm's future success. Among several evaluation methods, the net present value (NPV) methodology enjoys the highest prevalence. NPV method allows investors to objectively evaluate the efficacy and appeal, as well as compare investment projects that differ in scope, duration, or predicted profit. This article aims to illustrate the basic characteristics of the NPV method, as well as the benefits and shortcomings while applying it. This work could give users comprehensive learning about NPV and facilitate investors to judge whether it is appropriate to choose the NPV method for specific projects management. Besides, the article also provided a comparison between several methods, such as the internal rate of return method, in which case users can better choose the most suitable methods or apply all of them together.

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Section: The Npv Methods Theorymentioning

confidence: 99%

Section: The Npv Methods Theorymentioning

confidence: 99%

Section: A Comparison Between Npv and Other Evaluation Methodsmentioning

confidence: 99%

Section: The Advantages Of Npvmentioning

confidence: 99%

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A Literature Review on the Net Present Value (NPV) Valuation Method

Shou¹

2022

Advances in Economics, Business and Management Research

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“…The hurdle rate refers to the rate that the project must surpass to create positive shareholder wealth. Normally, if the IRR value is positive and higher than the discount rate, it shows that the project is acceptable(Mackevicius & Tomasevic, 2010). Mathematically, IRR can be determined by the following equations:Journal of Sustainability Science and Management Volume 16 Number 6, August 2021: 109-122 Wherein, r = Discount rate C = Cost t = Time C 0 = Initial investment C t = Cash inflow at t period 3 Profitability Index (PI) or Benefit Cost Ratio (BCR).…”

mentioning

confidence: 99%

The Application of Risk Analysis to the Project Appraisal of Stingless Bee Farming in Malaysia for Sustainability

Abdurofi¹,

Ismail²,

Ismail³

2021

JSSM

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Before implementing the massive production of stingless honeybees in order to increase honey yields, the viability and future sustainability of the stingless bees project should be carefully appraised. The objective of this study is therefore to assess the financial projections and simulate the risk factors that may affect future growth projections of stingless bee farming. The study uses capital budgeting techniques and sensitivity analysis scenarios, tax obligation and tax incentives. The findings showed that the stingless bee farming project in Malaysia is financially viable, highly-profitable and can swiftly recover its initial investment. Specifically, the farms on the Peninsular have high projected cash earning capacity, while more efficient farming and less project risks are seen in the Sarawak region. Additionally, if tax obligations are imposed, all indicators of financial appraisal have shown to be still attractive and the results are more lucrative with the application of tax waivers. Furthermore, the project would not be impacted in the change of hive prices and labour costs, indeed the farm is economically sustainable. The main concern should be changes in selling price as these are a considerable drag on the future appraisal of the project.

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