Calculation of the profitability of fuzzy investment cash flows using the reliable economic rate of return measure

Abstract

In recent years, the economic rate of return (ERR) index is one of the proper indices that has been presented to determine the profitability of the projects. The ERR measure has simple solution steps and has the ability to solve the non-existent real-valued and multiple IRRs problems. However, the ERR index has important shortcomings that have led to serious limitations in its use. In this regard, this paper introduces a new measure called the reliable economic rate of return (RERR), which has originated from ERR measure, but it has resolved the drawbacks of ERR index. On the other hand, it is sometimes difficult to estimate the values of cash flows as a crisp number, which may lead to a wrong decision in accepting or rejecting projects. For this purpose, this paper presents a new solution by considering the values of the cash flow in terms of fuzzy numbers, after calculating the fuzzy economic rate of return, the possibility degree of the investment projects profitability can be determined as well as reliable and in accordance with the net present value (NPV) method. Finally, using the @RISK software, this paper applies the Monte Carlo simulation method to analyze and validate the results.