APPLICATION OF DEPRECIATION NET PRESENT VALUE AND INTERNAL RATE OF RETURN IN ENGINEERING PROJECTS A BRIEF LITERATURE REVIEW

Abstract

The Net Present Value (NPV), Internal Rate of Return (IRR), and Depreciation Methods are employed in most engineering projects to visualize the true potential of Return on Investment (ROI) in today’s capital investment world. Most previous studies have appreciated and indicated the usefulness of each method in determining economically feasible projects. However, some previous studies have applied all methods without a proper distinction between budgeting and accounting concepts and lacked insights into various situations under which each method has differed. This paper aims to explore the circumstances in which all methods differ to determine the most economically and optimal project alternatives. It describes a thematic literature review of the past 17 articles like the peer-reviewed conference and journal articles published from 1969 through 2021. The articles with citations have been randomly selected to analyze the data. The results indicate that the three methods are commonly used in all engineering projects under certain conditions. It concludes that NPV and IRR are capital budgeting methods based on discounted cash flow methods while depreciation is the accounting method based on non-cash discounted methods. The results also demonstrate that different depreciation methods are also employed throughout the project evaluation process to determine the best project alternatives. For an engineer to produce the results and make effective investment decisions, estimating the cost, predicting the savings, and acclimatizing to the budgeting and accounting concepts are crucial under each method.