Investors must adopt profitable investment opportunities to maximize their wealth. Almost all investment, finance, engineering economics textbooks explain that net present value (NPV) measures the profitability (or value) of investment opportunities in absolute size, and internal rate of return (IRR) measures the profitability of investment opportunities in relative proportions. However, NPV is a measure of the relative size of the return on investment opportunity to do-nothing alternative. Moreover, IRR can occur in multiple investment opportunities and may not exist. To make matters worse, IRR and NPV also have conflicting problems in accept-or-reject decisions. In this study, the reason why NPV and IRR cannot accurately measure the profitability of investment opportunities is identified, and fundamental characteristics that investment opportunity profitability measures should have are presented.

The net present value (NPV) is generally used in accept-or-reject decisions in engineering projects. Although the internal rate of return (IRR) is a highly complex and arbitrary process, it can reach the same conclusion as the NPV criterion. However, neither the NPV nor the IRR indicates how much money should be invested and how much profit can be made from an investment during a project. In this study, based on the reasons why the NPV and IRR cannot correctly measure the profitability of an investment, the must-have profitability measurement characteristics of an engineering project are presented.

  The reinvestment assumption of the internal rate of return(IRR) method may not be valid in an engineering economy study. This situation, coupled with the computational demands and possible multiple interest rate associated with the IRR method, has given

A capital investment problem is essentially one of determining whether the anticipated cash inflows from a proposed project are sufficiently attractive to invest funds in the project. The net present value(NPV) criterion and internal rate of return(IRR) c