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In their recent paper Tang and Tang (2003, pp. 69-78) revive a longstanding controversy--net present value (NPV) versus internal rate of return (IRR)--by characterizing the NPV as an economic indicator and the IRR as a financial one. The paper implies that this distinction justifies ranking financial alternatives by ranking their IRRs. In the current article, it is argued that the direct IRR ranking does not necessarily provide the same evaluation environment--and therefore a fair comparison--for each alternative involved, and that the incremental ranking approach is needed to remedy this shortcoming. The article also points out that Tang and Tang's numerical examples of simple projects with one sign change in their cash flow patterns do not address the problem of multiple IRRs, which consequently renders Tang and Tang's ranking approach dysfunctional. It is demonstrated that the concept of a true rate of return, substituting for the non-performing IRR and applied in conjunction with the incremental approach, provides an adequate tool for ranking mutually exclusive projects or a project's technical or financial alternatives., In their recent paper, Tang and Tang (2003) join the decades-long discussion on the merits and validity of the internal rate of return (IRR) as a viable alternative to the [...]

The presented paper addresses the question of the NPV-compatibility of the Overall Rates of Return (ORRs), and analyses two project-ranking procedures that were advocated in the recent contribution 'Overall Rates of Return: Investment Basis, Reinvestment Rates and Time Horizons' by D.M. Shull (The Engineering Economist, Vol.39, No.2, Winter 1994, pp. 139-163). The paper indicates that the current definitions of the ORRs are not fully NPV-compatible, and it provides a generalized, NPV-compatible ORR definition. The paper further shows, using numerical examples, that the two project ranking procedures adopted by Shull are conceptually inadequate. It presents the correct approach to project-ranking, and proves that this approach can be used in conjunction with any NPV-compatible profitability criterion. Also, the paper addresses and rectifies some inaccurate statements and formulas in Shull's contribution. Finally, it is noted that Shull's Scale-Adjusted Return Method was, in fact, introduced nineteen years ago by P.J. Athanasopoulos ('A Note on the Modified Internal Rate of Return and Investment Criterion,' The Engineering Economist, Vol.23, No.2, Winter 1978, pp. 131-133)., INTRODUCTION In his recent paper [23], Shull undertakes a comparative analysis of some selected project evaluation criteria expressed in the rate of return format, and developed to substitute for the [...]

In their recent paper (D. Asquith & J.E. Bethel, 'Using Heuristics to Evaluate Projects: The Case of Ranking Projects by IRR,' The Engineering Economist, Vol. 40, No. 3 (Spring 1995, pp. 287-294)), the authors propose a project ranking procedure that is supposed to mitigate the impact of cash flow overvaluation by project managers. In the current contribution, it is indicated that this procedure is based upon a project ranking approach that employs the IRR criterion in a theoretically inadequate way. The correct, incremental approach to the IRR-based project ranking is reiterated, and it is shown that if this approach is applied, then its very design reduces the impact of CF-biases on project ranking. It is also demonstrated that even if competing projects are of equal scale, they must still be ranked by incremental comparison. Finally, it is pointed out that the incremental project ranking is the proper approach regardless of which NPV-compatible profitability measure is applied., INTRODUCTION In their recent paper [1], Asquith and Bethel discuss the issue of cash flow (CF) overvaluation by project managers trying to provide 'their' projects with an unfair advantage either [...]

Abstract In his recent paper, D.M. Shull ('Efficient Capital Project Selection Through a Yield-Based Capital Budgeting Technique,' The Engineering Economist, Vol.38, No.1 (Fall 1992), pp. 1-18) proposes a concept of [...]

A study was done to examine the payback period as a project evaluation criteria. The study considers the criticism by academicians against the method's validity and focuses on its classical definition for investment projects. Results show that the payback criterion can be redefined to allow compatibility with net present value conditions. In addition, the criterion was not valid for mutually exclusive projects., Introduction The Payback Period (PBP) project evaluation criterion, which has been applied since the beginning of this century, has been one of the most popular project evaluation criteria, despite its [...]

Comments on the report `Using Heuristics to Evaluate Projects: The Case of Ranking Projects by internal rate of return (IRR),' by D. Asquith and J. E. Bethel. Factors for the differences in ranking of the criteria; Effect of switching from the net profit value (NPV) to internal rate of return (IRR) on cash flow (CF)-overstatement; Projects scale and ranking.

Comments on R.G. Beaves' paper titled `The Case for a Generalized Net Present Value Formula,' published in the winter 1993 issue of `The Engineering Economist.' Projects transition point and the overall rate of return; Overall rate of return (ORR) and the two transition points; Net present value (NPV) compatibility of a complete ORR criterion.