Volume 52 Issue 11
Internal rate of return as a project-ranking tool
, 2000, Vol. 52, No. 11, pp. 31-35
One of the most popular project-evaluation and ranking criteria in the mining industry (Gentry and O’Neil, 1984, p. 267) and elsewhere (Sullivan et al., 2000, p. 157) has long been the internal rate of return (IRR). However, the IRR has been, over the better part of the twentieth century, the object of serious criticism for its shortcomings (Wright, 1936; Hirschleifer, 1958; Rapp, 1980; Hajdasinski, 1984; Levy and Sarnat, 1990; and others). Torries (1998a) presented a spirited defense of the IRR, trying to put it on equal footing with the net present value (NPV), which is universally regarded as a sound, wealth-maximizing criterion (Hirschleifer, 1958; Bussey, 1978; Levy and Sarnat, 1990; Brealey et al., 1992). At the same time, he marginalized the incremental approach to IRR-based project ranking, which has been available for seven decades (Fisher, 1930), replacing it with his own ranking procedure.
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