search query: @indexterm NET PRESENT VALUE / total: 71
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| Author: | Lohmann, J. R. |
| Title: | The IRR, NVP and the fallacy of the reinvestment rate assumptions. |
| Journal: | Engineering Economist
1988 : SUMMER, VOL. 33:4, p. 303-330 |
| Index terms: | NET PRESENT VALUE RATE OF RETURN CAPITAL INVESTMENT |
| Language: | eng |
| Abstract: | The misunderstandings in relation to Internal Rate of Return (IRR) and Net Present Value (NPV) decision criteria are discussed. The fallacy of "reinvestment rate assumption" is defined and illustrated numerically, mathematically and intuitively. The misconceptions appear to the result of a misunderstanding of two fundamental principles of economic decicion making: an economic decision should be based on prospective differences in terms of real monetary consequences. The terms "capital invested" and "cash released" are defined and illustrated in relation to the reinvestment opportunity and accept/reject decision. |
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