Weaknesses of the net present value method for evaluating and prioritizing investment projects

Abstract

The research aims to propose a new method of Net Present Value- NPV; It is not intended to replace it, on the contrary, it is sought to improve it and why not strengthen it based on scientific knowledge. The evaluator will be able to observe the result of the net present value in each of the periods and will be able to use the capital cost rates and the future reinvestment rate that they estimate for each project, at each moment and in each financial strategy.

The science of financial management has developed several models and conjectures to update fund flows and assign specific values ​​to discount rates and thus be able to use net present value methods and others that update future values. However, all these models have inconsistencies, generally noted by their authors and expositors at the same time of justifying their models and/or theories.

The essence of the proposed method is to allow simulating the "financial reality of a project" in a more precise way than traditional methods, deciding the management of the project's benefits, by applying the capital cost rates (T.C.C.) and capitalization rate. future reinvestment (T.R.F.) that correspond at all times, in each company and according to its strategy. This allows us to separate the fraction of profits that will be used to return the investments from the rest of the profits that will be invested, at a future reinvestment rate. (which may be different for different projects).