APPLICATION OF DEPRECIATION NET PRESENT VALUE AND INTERNAL RATE OF RETURN IN ENGINEERING PROJECTS A BRIEF LITERATURE REVIEW
Keywords:net-present value, capital budgeting, internal rate of return, capital expenditure, depreciation expenses
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.
Asma Arshad, “Present value is better than the internal rate of return”, Interdisciplinary Journal of
Contemporary Research in Business, pp.212-219,2012.
Corporate Finance Institute, CFI, n.d. [Online].
[Accessed 17 October 2021].
Helena. G. Wieloch, “Project net present value estimation under uncertainty”, Central European Journal of Operations Research. Vol.27,pp,179-197,2019.
Kenneth J. Arrow. David Levhari, “Uniqueness of the internal rate of return with variable life of
investment”, The Economic Journal, Vol.79, pp.560-566,1969.
Oreilly, "Oreilly," n.d. [Online]. Available: https://www.oreilly.com/library/view/engineering-
economy/9789332503601/xhtml/chapter008.xhtml. [Accessed 17 October 2021]
M. Setiyo, " Techno-economic Analysis of Liquid Petroleum Gas-Fueled Vehicles as Public
Transportation in Indonesia," International Journal of Energy Economics and Policy, vol. 6, no. 3, pp.
M. H. Mondal, "Economic viability of solar home systems: Case study of Bangladesh," Renewable
Energy, vol. 35, pp. 1125-1129, 2010.
M. Larrain, S. V. Passel, G. Thomassen, B. V. Gorp, T. T. Nhu, S. Huysveld, K. M. Geem, S. D.
Meester and P. Billen, "Techno-economic assessment of mechanical recycling of challenging post-
consumer plastic packaging waste," Resources, Conservation and Recycling, pp. 1-13, 2021.
P. Narkwatchara, C. Ratanatamskul and A. Chandrachai, "Performance analysis of electricity
generation from grid-connected photovoltaic system using All-Sky Index for Smart City projects in
Thailand," Renewable Energy, vol. 171, pp. 315-327, 2021.
R. Kaplan and M. Kopacz, "Economic Conditions for Developing Hydrogen Production Based on
Coal Gasification with Carbon Capture and Storage in Poland," Energies, vol. 13, no. 19, pp. 5074-
K. Storchmann, "On the depreciation of automobiles: An international comparison," Transportation,
vol. 31, pp. 371-348, 2004.
R. Lukic, A. Hanic and A. Hanic, "The impact of depreciation expense on the performance of trade in
Serbia," International Review, pp. 1-16, 2016.
E. and W. M. Daryanto, "A case study of Nam Con 2 Phase 2 pipeline project, Vietnam for the
period of 2019-2037," South East Asia Journal of Contemporary Bussiness, Economic and Law, vol.
, no. 3, pp. 8-12, 2018.
S. S. Bang and S. Y. Park, "Effect of Depreciation Method for a Long-Term Tangible Assets on
Sustainable Management: From a Nuclear Power Generation Cost Perspective under the Nuclear
Phase-Out Policy," Sustainability, vol. 13, no. 9, pp. 1-15, 2021.
N. Terry, B. Shao and J. Marr, "The Impact of Brand on Depreciation in the Automobile Industry,"
International Advances in Economic Research, vol. 24, pp. 291-293, 2018.
M. Coureaux and E. Manzano, "The energy impact of luminaire depreciation on urban lighting,"
energy for sustainable development, vol. 17, pp. 357-362, 2013.
J. B. Soares, A. S. Szklo and M. T. Tolmasquim, "Alternative depreciation policies for promoting
combined heat and power (CHP) development in Brazil," Energy, vol. 31, pp. 1151-1166, 2006.
How to Cite
Copyright (c) 2022 Copyright (c) 2022 Journal of Applied Engineering, Technology and Management (JAETM)
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.