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When and How to Use NPV, IRR, and Modified IRR

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Date
2005-01
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Published
2005-01
Abstract
The Economic Evaluation Notes are arranged in three groups. The first group (TRN-6 to TRN-10) provides criteria for selection a particular evaluation technique or approach; the second (TRN-11 to TRN-17) addresses the selection of values of various inputs to the evaluation, and the third (TRN-18 to TRN-26) deals with specific problematic issues in economic evaluation. The Notes are preceded by a Framework (TRN-5), that provides the context within which we use economic evaluation in the transport sector. All three NPV, IRR, and modified IRR are summary measures of project performance. Each one provides a single figure summarizing the impact of the project on economic welfare. Each of the three measures does, however, give subtly different information: 1) NPV focuses on the total welfare gain over the whole life of the project; and, 2) IRR and Modified IRR focus on the rate at which benefits are realized following an initial transport investment.
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Mackie, Peter; Nellthorp, John; Laird, James. 2005. When and How to Use NPV, IRR, and Modified IRR. Transport Notes Series; No. TRN 6. © World Bank, Washington, DC. http://hdl.handle.net/10986/11792 License: CC BY 3.0 IGO.
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