W. R. Cook

Fall

Using The Internal Rate Of Return In Public Sector Project Evaluations

Authors:
Pages:
11-22

Project evaluation in the public sector is a recent development, to which there are basically two approaches. One is to capitalize the flow of future costs and benefits as net present value (NPV) and to prefer the higher NPV when choosing between two projects. The other is to Find the internal rate of return (IRR), that is, the discount rate that brings the flow of costs in equilibrium with the flow of the benefits at a particular time. The tendency has been to prefer the NPV method Or its case of calculation, but this need no longer concern Lis, given the widespread availability of personal computers. In addition Lion, IRR wits alleged to be ambiguous again this is easily remedied. The IRR has the advantage that it avoids the need to choose a discount rate, which involves a risk of serious bias.