A clarification of the concepts of "income, wealth base, and rate of return implications of alternative project evaluation criteria.": An article from: Engineering Economist

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From the author: A recent paper by Bernhard [The Engineering Economist, 38 (Spring 1993) 3, pp. 165-176)] asserts that the NPV decision criterion, and by implication the NPV measure of worth, which is part of the decision criterion, implies a different "investment" and "project income" (return) than the IRR decision criterion, except when the internal rate(s) of return are equal to the external rate(s) of return. In this paper, it is demonstrated that both the IRR decision criterion and the NPV decision criterion assume that the capital that remains invested (or borrowed) in an opportunity grows at the IRR of the opportunity and cash released by the decision about the opportunity would be invested to grow at the decision maker's marginal growth rate (or "external" rate).

Citation Details
Title: A clarification of the concepts of "income, wealth base, and rate of return implications of alternative project evaluation criteria."
Author: Jack R. Lohmann
Publication:Engineering Economist (Refereed)
Date: June 22, 1994
Publisher: Institute of Industrial Engineers, Inc. (IIE)
Volume: v39 Issue: n4 Page: p355(7)

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