Technical Note: Economic Rates of Return and Investment Analysis

Abstract

This article shows that a given series of single-period economic rates of return can be aggregated into either an economic average internal rate of return or a modified internal rate of return, depending upon the aggregation process (weighted average or geometric mean) and on the use of traditional economic depreciation to determine capital values for each time period. The results are shown analytically and numerically and evaluated under different levels of discount rates. The modified internal rate of return is also a form of the average internal rate of return based on the geometric mean, rather than the arithmetic mean.