COMMENTS ON “USING HEURISTICS TO EVALUATE PROJECTS: THE CASE OF RANKING PROJECTS BY IRR”
作者:
MIROSL/AWM. HAJDASIŃSKI,
期刊:
The Engineering Economist
(Taylor Available online 1997)
卷期:
Volume 42,
issue 2
页码: 163-166
ISSN:0013-791X
年代: 1997
DOI:10.1080/00137919708903175
出版商: Taylor & Francis Group
数据来源: Taylor
摘要:
In their recent paper ( D. Asquith & J.E. Bethel, “Using Heuristics to Evaluate Projects: The Case of Ranking Projects by IRR,”The Engineering Economist, Vol. 40, No. 3 (Spring 1995, pp. 287-294) ), the authors propose a project ranking procedure that is supposed to mitigate the impact of cash flow overvaluation by project managers. In the current contribution, it is indicated that this procedure is based upon a project ranking approach that employs the IRR criterion in a theoretically inadequate way. The correct, incremental approach to the IRR-based project ranking is reiterated, and it is shown that if this approach is applied, then its very design reduces the impact of CF-biases on project ranking. It is also demonstrated that even if competing projects are of equal scale, they must still be ranked by incremental comparison. Finally, it is pointed out that the incremental project ranking is the proper approach regardless of which NPV-compatible profitability measure is applied.
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