Analyze and Improvement of NPV and IRR Methods
DOI:
https://doi.org/10.54097/zxfhde20Keywords:
Net present value, Internal rate of return, Advantages, Disadvantages, Modified internal rate of return.Abstract
This paper aims to analyze NPV and IRR and find a better way to apply them to decide on investment. The article presents the advantages and disadvantages of the two methods to support analysis based on other research results. After that, the paper uses examples to analyze mathematically how NPV and IRR work together to overcome one of the disadvantages when the other is not able to distinguish the difference between investments. Also, the characteristics of MIRR are another solution to the disadvantages of IRR mentioned in the paper. The conclusion is that NPV and IRR can complement each other's drawbacks, and MIRR can further address their limitations, making them more applicable for analyzing investment projects.
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