A Sufficient Condition for a Unique Nonnegative Internal Rate of Return

Norstrøm, Carl J.

doi:10.2307/2329806

Cited by 59 publications

(32 citation statements)

References 8 publications

(12 reference statements)

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“…Proposition 4 (Norstrøm 1972 The class of projects described by Norstrøm was in turn extended in the following years by several scholars, including the following result provided by Bernhard (1979Bernhard ( , 1980. Proposition 5 (Bernhard 1979, 1980, Gronchi 1987 (See also Aucamp and Eckardt 1976, De Faro 1978, Pratt and Hammond 1977, 1979.…”

Section: Irr Acceptability Criterion Rule (I) An Investment Is Accementioning

confidence: 90%

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Capital depreciation and the underdetermination of rate of return: A unifying perspective

Magni

2016

Journal of Mathematical Economics

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Abstract. This paper shows that the notion of rate of return is best understood through the lens of the average-internal-rate-of-return (AIRR) model, first introduced in Magni (2010a). It is an NPVconsistent approach based on a coherent definition of rate of return and on the notion of Chisini mean, it is capable of solving the conundrums originated by the rate-of-return notion and represents a unifying theoretical paradigm under which every existing measure of wealth creation can be subsumed. We show that a rate of return is underdetermined by the project's cash-flow stream; in particular, a unique return function (not a unique rate of return) exists for every project which maps depreciation classes into rates of return. The various shapes a rate of return can take on (internal rate of return, average accounting rate of return, modified internal rate of return etc.) derive from the (implicit or explicit) selection of different depreciation patterns. To single out the appropriate rate of return for a project, auxiliary assumptions are needed regarding the project's capital depreciation. This involves value judgment. On one side, this finding opens terrain for a capital valuation theory yet to be developed; on the other side, it triggers the creation of a toolkit of domainspecific and purpose-specific metrics that can be used, jointly or in isolation, for analyzing the economic profitability of a given project. We also show that the AIRR perspective has a high explanatory power that enables connecting seemingly unrelated notions and linking various disciplines such as economics, finance, and accounting. Some guidelines for practitioners are also provided.

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Section: Irr Acceptability Criterion Rule (I) An Investment Is Accementioning

confidence: 90%

“…Proposition 3 (Jean 1968, Gronchi 1987 The class of projects described by Jean was then extended by Norstrøm (1972) as follows.…”

Section: Irr Acceptability Criterion Rule (I) An Investment Is Accementioning

confidence: 99%

Capital depreciation and the underdetermination of rate of return: A unifying perspective

Magni

2016

Journal of Mathematical Economics

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“…tando continuações de sinal, Norstrom (16) provou que, se houver não mais do que uma variação de sinal na seqüência de fluxos de caixa cumulativos, com o último termo sendo positivo, então ao projeto considerado associar-se-áexatamente uma taxa interna de retorno (positiva). Isto é, o simples exame do número de variações de sinal em (10) provê uma condição de suficiência para a aplicabilidade do critério da taxa interna de retorno.…”

Section: Revista De Administração De Empresasunclassified

“…Assim, na literatura contemporânea, de que são exemplos típicos as referências (3), (11), (13), (14), (16) e (20), são apresentadas condições de suficiência que, uma vez obedecidas, garantem a correta implementação do critério.…”

Section: Introductionunclassified

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O critério da taxa interna de retorno e o caso dos projetos do tipo investimento puro

Faro¹

1976

Rev. adm. empres.

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Multiple Internal Rates of Return: A Revisitation

Sisson¹,

Nielsen²

1993

Rev Financ Econ

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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.

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A Sufficient Condition for a Unique Nonnegative Internal Rate of Return

Cited by 59 publications

References 8 publications

Capital depreciation and the underdetermination of rate of return: A unifying perspective

Capital depreciation and the underdetermination of rate of return: A unifying perspective

O critério da taxa interna de retorno e o caso dos projetos do tipo investimento puro

Multiple Internal Rates of Return: A Revisitation

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