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Multiple Internal Rates Of Return: A Revisitation

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  • James R. Sisson
  • James F. Nielsen

Abstract

This paper investigates the utility of certain existing rules for the identification of non‐imaginary internal rates of return in the capital budgeting process. More specifically, the paper demonstrates the applicability of Descartes' Rule of Signs, Budan's Theorem, and Sturm's Theorem from the theory of equations and rules developed in the business literature by Teichroew, Robichek, and Montalbano (1965a, 1965b), Mao (1969), Jean (1968, 1969), and Pratt and Hammond (1979). In so doing, the paper provides a framework that accounting, economic, and finance practitioners may use while grappling with the increasing possibility of multiple solutions in contemporary capital budgeting decisions.

Suggested Citation

  • James R. Sisson & James F. Nielsen, 1993. "Multiple Internal Rates Of Return: A Revisitation," Review of Financial Economics, John Wiley & Sons, vol. 2(2), pages 85-97, March.
    • Handle: RePEc:wly:revfec:v:2:y:1993:i:2:p:85-97
    DOI: 10.1002/j.1873-5924.1993.tb00567.x
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    References listed on IDEAS

    as
    1. James H. Lorie & Leonard J. Savage, 1955. "Three Problems in Rationing Capital," The Journal of Business, University of Chicago Press, vol. 28, pages 229-229.
    2. William H. Jean, 1968. "On Multiple Rates Of Return," Journal of Finance, American Finance Association, vol. 23(1), pages 187-191, March.
    3. Aucamp, Donald C. & Eckardt, Walter L., 1976. "A Sufficient Condition for a Unique Nonnegative Internal Rate of Return–Comment," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 11(2), pages 329-332, June.
    4. Daniel Teichroew & Alexander A. Robichek & Michael Montalbano, 1965. "An Analysis of Criteria for Investment and Financing Decisions Under Certainty," Management Science, INFORMS, vol. 12(3), pages 151-179, November.
    5. Hirshleifer, Jack, 1969. "On Multiple Rates of Return: Comment," Journal of Finance, American Finance Association, vol. 24(1), pages 1-98, March.
    6. J. Hirshleifer, 1958. "On the Theory of Optimal Investment Decision," Journal of Political Economy, University of Chicago Press, vol. 66(4), pages 329-329.
    7. John S. Hammond, III, 1974. "Simplifying the Choice between Uncertain Prospects Where Preference is Nonlinear," Management Science, INFORMS, vol. 20(7), pages 1047-1072, March.
    8. Jean, William H, 1969. "On Multiple Rates of Return: Reply," Journal of Finance, American Finance Association, vol. 24(1), pages 99-100, March.
    9. Pratt, John W & Hammond, John S, III, 1979. "Evaluating and Comparing Projects: Simple Detection of False Alarms," Journal of Finance, American Finance Association, vol. 34(5), pages 1231-1242, December.
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