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The Unique, Real Internal Rate of Return: Caveat Emptor!

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  • Herbst, Anthony

Abstract

The purpose of this paper is to show that the internal rate of return (IRR) even when unique and real may nevertheless be an incorrect measure of the return on investment, and to prove that all projects characterized by negative flows occurring only at the beginning and end will be mixed investments for which the IRR, whether unique and real or not, is not a correct measure of investment return.

Suggested Citation

  • Herbst, Anthony, 1978. "The Unique, Real Internal Rate of Return: Caveat Emptor!," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(2), pages 363-370, June.
    • Handle: RePEc:cup:jfinqa:v:13:y:1978:i:02:p:363-370_00
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    Cited by:

    1. Vicente Alcaraz Carrillo De Albornoz & Antonio Lara Galera & Juan Molina Millán, 2018. "Is It Correct to Use the Internal Rate of Return to Evaluate the Sustainability of Investment Decisions in Public Private Partnership Projects?," Sustainability, MDPI, vol. 10(12), pages 1-15, November.
    2. 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.
    3. Mikhail V. Sokolov, 2023. "An effective interest rate cap: a clarification," Papers 2307.08861, arXiv.org, revised May 2024.
    4. 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".
    5. 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".

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