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Evaluation of Nonconventional Projects: GIRR and GERR vs. MIRR

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  • Nikolay Yu. Kulakov
  • Anastasia Blaset Kastro

Abstract

This article considers evaluation of nonconventional projects and projects with cash outflows occurring not only at the beginning of project. It has been proved that, being a monotonically increasing function of a discount or finance rate, the modified internal rate of return (MIRR) fails to characterize the rate of return of such projects. We showed how to eliminate the MIRR's dependence on a finance rate and proved that in this case the MIRR becomes the “equivalent rate of return” proposed by Solomon. The generalized internal rate of return (GIRR) and generalized external rate of return (GERR) indices based on the generalized net present value (GNPV) approach are considered as alternatives to the MIRR. Several nonconventional projects have been evaluated using the MIRR, GIRR, and GERR rules. In order to verify the estimates, we drew up a simple project balance sheet, which demonstrated correctness of the results based on the GIRR and GERR rules and errors inherent in the MIRR application.

Suggested Citation

  • Nikolay Yu. Kulakov & Anastasia Blaset Kastro, 2015. "Evaluation of Nonconventional Projects: GIRR and GERR vs. MIRR," The Engineering Economist, Taylor & Francis Journals, vol. 60(3), pages 183-196, July.
    • Handle: RePEc:taf:uteexx:v:60:y:2015:i:3:p:183-196
    DOI: 10.1080/0013791X.2014.1002053
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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.

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