Internal Rate of Return (IRR): A New Proposed Approach

Murad Mohammed Mujahed () and Elgilani Eltahir Elshareif ()
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Murad Mohammed Mujahed: Canadian University of Dubai
Elgilani Eltahir Elshareif: Canadian University of Dubai

Chapter Chapter 68 in Leadership, Innovation and Entrepreneurship as Driving Forces of the Global Economy, 2017, pp 761-767 from Springer

Abstract: Abstract This study tries to develop a new internal rate of return (IRR) approach assuming constant and positive cash flows. The traditional IRR method is implicitly based on trial and error that needs two initial guesses and slowly converges to the solution. The development so far was based on Newton–Raphson methods that reduce the two guesses to only one guess with quadratic convergence. However, this development has many limitations such as divergence at inflection points and pitfalls like division by zero. The progress of our study so far is to eliminate the initial guess with assumption of equal series of positive cash flows. Further, the expected finding of the new approach will assist practitioners and academics to compute the IRR accurately as the rate of return on the declining balance of the investment, analogous to the YTM on a premium bond and the contract rate on a fully amortized loan.

Keywords: Bisection; Newton–Raphson; IRR (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-319-43434-6_68

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DOI: 10.1007/978-3-319-43434-6_68

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