The use of interest method in a ranking of alternative investment projects

Among the methods of assessing the economic justification of investment projects which are based on the discount technique, the method of net present value and the method of internal rate of return have primary importance. In case where there are independent projects, the main rule is that the project will be accepted if its net present value is positive, i.e., if the internal rate of return is higher than the discount rate, that should not be implemented if its net present value is negative, i.e., the internal rate of return less than the discount rate. It usually happens that a project with a higher net present value has a higher internal rate of return, but it is not uncommon for a project with a higher net present value to have a lower internal rate of return and vice versa, that a project with a higher internal rate of return has a lower net present value. If investment projects with such characteristics are mutually competitive, in the sense that accepting one of them means rejecting the other, there is a problem in their ranking, in terms of answering the question which of the alternative projects is better, the one with higher net present value or the one with a higher internal rate of return? Such cases are treated in the literature as conflict situations in ranking. In this paper, we will limit ourselves to the application of one method of their solving, the method of additional interest rates, in one specific type of investment projects that are characterized by one-time investments in zero period and one-time effects that are promising in different time periods.