Research Article
Comparison of NPV and IRR Rule Based on an Empirical Examination
@INPROCEEDINGS{10.4108/eai.18-11-2022.2327118, author={Han Lin and Manni Zhang and Carl Wang}, title={Comparison of NPV and IRR Rule Based on an Empirical Examination}, proceedings={Proceedings of the 4th International Conference on Economic Management and Model Engineering, ICEMME 2022, November 18-20, 2022, Nanjing, China}, publisher={EAI}, proceedings_a={ICEMME}, year={2023}, month={2}, keywords={npv irr manager project cash flows}, doi={10.4108/eai.18-11-2022.2327118} }- Han Lin
Manni Zhang
Carl Wang
Year: 2023
Comparison of NPV and IRR Rule Based on an Empirical Examination
ICEMME
EAI
DOI: 10.4108/eai.18-11-2022.2327118
Abstract
This research is conducted to compare differences between internal rate of return and net present value rules when given different conditions. With equations like NPV=C0+Cashflow1/(1+r)+Cashflow2/(1+r)2+....Cashflow T/(1+r)t , this essay compared different performances of two rules when different conditions are given. Our interest in this field originated from a specific project of an industrial company which led us to conflicts of two rules at a management meeting. To figure out the advantages and problems of each rule under different circumstances, this essay analysed the characteristics of both rules when they are subject to the effects of external factors and internal factors. Furthermore, some crucial information about some fund-raising projects of an industrial company located in Guangzhou was collected and used to analyse the performance of IRR and NPV rules. Overall, conclusion of this essay is two rules should always be applied at the same time. Regardless of possible conflicts, both reflect returns of projects, and two rules are related. Despite possible differences in percentage changes in values of NPV and IRR caused by external and internal factors, both reflect a prediction of returns of projects. For managers, it’s better to compare two rules as changes in cash flows are unpredictable, and such changes are always subject to specific projects.