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Addendum to "Average Internal Rate of Return and Investment Decisions: A New Perspective"

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  • Carlo Alberto Magni

Abstract

This note specifies some results found in [Magni 2010. The Engineering Economists, 55(2), 150-180] where the Average Internal Rate of Return (AIRR) is presented, which overcome all the IRR difficulties. In particular, the AIRR approach enables to prove that (1) a project is not uniquely associated with a return rate, but with a return function, which maps aggregate capitals to rates of return; (2) any definition of rate of return appearing in the (past and) future literature is a particular case of AIRR; (3) for choices between mutually exclusvie projects, the AIRR acceptability criterion may be applied to the incremental project; (4) the AIRR approach easily provides the evaluator with the rate of return on initial investment, whereas the IRR is only the rate of return on an aggregate capital which is internally implied by the IRR itself.

Suggested Citation

  • Carlo Alberto Magni, 2011. "Addendum to "Average Internal Rate of Return and Investment Decisions: A New Perspective"," Proyecciones Financieras y Valoración 8138, Master Consultores.
    • Handle: RePEc:col:000463:008138
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    Cited by:

    1. Magni, Carlo Alberto, 2016. "Capital depreciation and the underdetermination of rate of return: A unifying perspective," Journal of Mathematical Economics, Elsevier, vol. 67(C), pages 54-79.
    2. Carlo Alberto Magni & Ken V. Peasnell, 2015. "The Term Structure of Capital Values:An accounting-based framework for measuring economic profitability," Department of Economics 0060, University of Modena and Reggio E., Faculty of Economics "Marco Biagi".
    3. Pasqual, Joan & Padilla, Emilio & Jadotte, Evans, 2013. "Technical note: Equivalence of different profitability criteria with the net present value," International Journal of Production Economics, Elsevier, vol. 142(1), pages 205-210.

    More about this item

    Keywords

    rate of return; capital investment analysis; internal rate of return; AIRR;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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