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Unrecovered Investment, Uniqueness of the Internal Rate, and the Question of Project Acceptability

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  • Bernhard, Richard B.

Abstract

Consider a productive investment project (or financial security), which would yield a stream of cash flows, positive and negative, over time. A major index of the acceptability of such a project is its internal rate of return, i.e., that rate of interest which discounts all the cash flows from the project to a present worth of zero. Soper [8] has developed a sufficient condition for the internal rate to be unique in the interval, (−1,∞), along the real line. Then, if the project requires an initial outlay, if Soper's condition holds, and if the unique internal rate exceeds the market rate of interest in each period of the project's life, the project's present worth is positive, and hence, other things being equal, it is worth undertaking.

Suggested Citation

  • Bernhard, Richard B., 1977. "Unrecovered Investment, Uniqueness of the Internal Rate, and the Question of Project Acceptability," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(1), pages 33-38, March.
    • Handle: RePEc:cup:jfinqa:v:12:y:1977:i:01:p:33-38_02
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    Cited by:

    1. Carlo Alberto Magni, 2009. "Accounting and economic measures:An integrated theory of capital budgeting," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 0019, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    2. Carlo Alberto Magni, 2010. "Average Internal Rate of Return and investment decisions: A new perspective," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 0021, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    3. Remer, Donald S. & Nieto, Armando P., 1995. "A compendium and comparison of 25 project evaluation techniques. Part 2: Ratio, payback, and accounting methods," International Journal of Production Economics, Elsevier, vol. 42(2), pages 101-129, December.
    4. Remer, Donald S. & Nieto, Armando P., 1995. "A compendium and comparison of 25 project evaluation techniques. Part 1: Net present value and rate of return methods," International Journal of Production Economics, Elsevier, vol. 42(1), pages 79-96, November.

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