Chapter 7. Operating profitableness of the investment project. Dynamic indicator profitableness of project

Alexandr Zhevnyak

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Abstract: The general principle of constructing the operating profitableness of the investment project (OIRR) is proposed in the form of the ratio of the aggregate investor and the recipient of interest discounted income to their total discounted indebtedness calculated at each interval of the change in the discount rate between two neighboring IRR values. However, in the interval between the lowest and highest IRR value of the project, OIRR assumes values equal to the discount rate, which means that it does not have the property of NPV compatibility and cannot be used in practice. Alternatively of OIRR, the indicator DIRR (dynamic IRR) is offered as a sum of the discount rate and the ratio of NPV to the dynamic indebtedness of the project (it was also used in the OIRR denominator). The DIRR is constructed as a spline function from the fragments computed in each interval between neighboring IRR values. It is proved that DIRR is differentiable at a discount rate everywhere, except for points that coincide with IRR values of even multiplicity

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