Average Internal Rate Of Return Research Articles

Economic Comparison of Wood and Fiberglass Fishing Vessels Produced in Traditional Yards

Wooden boats are commonly considered to be more cost effective compared to fiberglass boats, and no study has described the economic disparities between the two vessel types. Therefore, this study aimed to provide a comprehensive economic comparison between wooden and fiberglass boats, including the return-on-investment timelines and the potential profitability. A qualitative method was used in this study, and the data were collected through survey techniques. The economic analysis results showed that the average Net Present Values of wooden and fiberglass boats were IDR 72,935,055 and IDR 84,511,500 respectively. The average Net Benefit-Cost Ratio and the average Internal Rate of Return for both vessel types were 1 and 11%. The average Payback Period was approximately 6.6 years for wooden boats with a profit of IDR 8,902,000, and 6 years for fiberglass boats with a profit of IDR 11,936,944. In conclusion, the use of both vessels was not only acceptable but feasible for operation.

A robust model to estimate a firm’s average economic return

Theoretical studies question the ability of financial statement information to provide evidence about a firm’s economic performance, as the mathematical relation between a firm’s accounting and economic returns becomes intractable when economic depreciation is defined endogenously—as a function of the firm’s cash flow stream—and when its internal rate of return (IRR) and investment growth rate have not been constant. This paper derives a new equation, called the average internal rate of return (AIRR) estimation model, in which a firm’s AIRR is estimated as a function of its current-year accounting return, its current-year asset growth rate, a measure of accounting conservatism, and a term that identifies the firm’s historical investment growth rate trend. Because the model allows economic depreciation to be defined exogenously, non-constant returns and growth rates can be aggregated across investment cohorts, allowing a firm’s accounting return to be reconciled to its average economic return. One such exogenous schedule—called competitive market depreciation—is used to illustrate the model’s implications. The AIRR estimation model empowers analysts to identify the direction and magnitude of the potential difference between a firm’s accounting and economic return created by fixed asset depreciation, accounting accruals, and the immediate expensing of intangible assets.

Peer-to-peer lending: Legal loan sharking or altruistic investment? Analyzing platform investments from a credit risk perspective

This paper analyzes the performance of peer-to-peer investments, the potential benefits of their information processing and the investor returns, based on the entire portfolio of the Estonian platform Bondora. We found that the platform's scoring model relies on different default probabilities across countries and is weak at predicting default within countries. Alternative information could improve the models, but our analysis could not confirm this benefit of the platform. The average internal rate of return on closed transactions was –4.17%, and 42% of the loans end with a negative IRR. We concluded that P2P borrowers in the European market are mainly high-risk, bank ineligible clients, accepting even loan-sharking level interest rates, which excludes altruistic motives of investors. Even so, investors are not compensated for the credit risk.

Financial Analysis of Innovative Wood Products and Carbon Finance to Support Forest Restoration in California

Abstract Traditional funding strategies of grants, congressional appropriations, and income from timber sales are insufficient to complete the level of forest restoration necessary throughout California. Stimulating investment into markets for low-value biomass—such as tops and branches of trees, small trees, and dead trees—will add value to forest raw materials and provide additional revenue streams to pay for forest restoration. We evaluate the investment potential of products made from low-value biomass using a discounted cash-flow analysis of several possible forest products including fuels and nonfuels under various climate policy and market scenarios. We demonstrate the carbon benefits provided by these products, attributed to their substitution for fossil-fuel feedstocks and long-term carbon storage. Our work finds that there is an opportunity to develop several highly profitable products, most notably fuels, many of which are eligible for energy and climate policy programs such as California's Low Carbon Fuel Standard and the federal Renewable Fuel Standard. Nonfuel products have an average internal rate of return (IRR) of 13 percent, whereas fuels have an average IRR of 19 percent in our baseline scenario. Although products ineligible for government incentives are generally less profitable, income from the voluntary carbon market greatly increases the IRR. Fostering investment into these products can encourage critically needed funding for forest management while developing a high-impact carbon removal solution enabled by state, federal, and voluntary climate initiatives. On this basis, we conclude that climate policy can support forest restoration in California.

Technical and Economic Analysis of Energy Recovery from Municipal Solid Waste in Yola Metropolis, Adamawa State, Nigeria

There has been an increase in the general spending and consumption habit of people, the consequence of which is an increase in the quantity of municipal solid wastes (MSW) being generated particularly in urban areas. Yola, the capital of Adamawa State in the northeast region of Nigeria an urban area also has its share of problems associated with solid wastes management. In addition, the city like most other cities in Nigeria experiences inadequate electricity supply. Hence the need for this research - to assess the technical and economic potentials of recovering energy from the MSW generated in Yola using incineration as the technology of choice. The American Society for Testing and Materials (ASTM) method (ASTM D5231) was used to sample and characterise the waste disposed of in the city’s dumpsites. It was found that the average calorific value of the MSW disposed of in the city’s dumpsite is 1,515.67 kcal/kg. It was also found that if incineration is used as the preferred waste-to-energy technology, a total of 3,748.60 kW of electrical energy could be recovered from the three dumpsites studied. The economic analysis conducted showed that energy recovery via incineration has an average internal rate of return (IRR) of 252%. The following conclusions were drawn from the results obtained: The quantity and composition of MSW disposed of at dumpsites in Yola is suitable for energy generation via incineration; from an economic perspective, incineration of MSW is a viable waste-to-energy technology for Yola.

Multi-Objective Optimal Design of a Hydrogen Supply Chain Powered with Agro-Industrial Wastes from the Sugarcane Industry: A Mexican Case Study

This paper presents an optimization modeling approach to support strategic planning for designing hydrogen supply chain (HSC) networks. The energy source for hydrogen production is proposed to be electricity generated at Mexican sugar factories. This study considers the utilization of existing infrastructure in strategic areas of the country, which brings several advantages in terms of possible solutions. This study aims to evaluate the economic and environmental implications of using biomass wastes for energy generation, and its integration to the national energy grid, where the problem is addressed as a mixed-integer linear program (MILP), adopting maximization of annual profit, and minimization of greenhouse gas emissions as optimization criteria. Input data is provided by sugar companies and the national transport and energy information platform, and were represented by probability distributions to consider variability in key parameters. Independent solutions show similarities in terms of resource utilization, while also significant differences regarding economic and environmental indicators. Multi-objective optimization was performed by a genetic algorithm (GA). The optimal HSC network configuration is selected using a multi-criteria decision technique, i.e., TOPSIS. An uncertainty analysis is performed, and main economic indicators are estimated by investment assessment. Main results show the trade-off interactions between the HSC elements and optimization criteria. The average internal rate of return (IRR) is estimated to be 21.5% and average payback period is 5.02 years.

Valuing Enhanced Hydrologic Data and Forecasting for Informing Hydropower Operations

Climate change is rapidly modifying historic river flows and snowpack conditions in the Sierra Nevada in California and other seasonally snow-covered mountains. Statistical forecasting methods based on regressing summer flow against spring snow water equivalent, precipitation, and antecedent runoff are thus becoming increasingly inadequate for water-resources decision making, which can lead to missed opportunities in maximizing beneficial uses, including the value of hydropower resources. An enhanced forecasting method using a process-based model and spatially distributed wireless sensor data offers more accurate runoff forecasts. In this paper, we assessed the forecasting accuracy of these two forecasting methods by applying them to two tributaries within the North Fork Feather River basin in California. The result shows the enhanced forecasting method having better accuracy than the statistical model. In addition, a hydropower simulation showed a considerable increase in energy value with the enhanced forecasting informing reservoir operations. The investment analysis on applying this method shows an average internal rate of return of 31% across all scenarios, making this forecasting method an attractive way to better inform water-related decisions for hydropower generation in the context of climate change.

The revival of private residential landlordism in Britain through the prism of changing returns

ABSTRACT Unlike many other countries, Britain had a weak private rented sector (PRS) in decline for most of the twentieth century. A revival began from the turn of the millennium. The platform for this rebirth was the removal of regulation and the arrival of buy to let (BTL) mortgages for individuals at competitive interest rates. The dynamic and rapid development of the PRS cannot be understood in isolation to the financial rewards that the sector was offering to its investors. This paper calculates the internal rate of return (IRR) from investing in BTL, since its inception in 1996. It uses a financial model to simulate average BTL purchases in eleven regions, investing in every year over the period from 1996 to 2015. The paper finds strong evidence that the early spectacular growth in the BTL market was stimulated and sustained by very attractive perceived rewards. Over the entire analysis period from 1996 to 2015, investors have attained an average IRR of 12%, compared to 5.8% from the stock market. The paper also finds that recent unfavourable tax changes lower the returns, but that the sector will continue to offer a much higher return than that offered by the equity market.

Technical note: Modified simple average internal rate of return

One of the most attractive indexes to select the best investment decision is internal rate of return (IRR) measure, but it has some significant faults both in practice and theoretically. Multiple attempts have been made to resolve the IRR challenges, but none of them are perfect. This article presents the Modified Simple Average Internal Rate of Return criterion as a profitability index for calculating a unique rate of return for all various types of cash flow streams so that obtained results are consistent with the net present value method in accept/reject decisions. The presented method is simple to compute and is capable of resolving all known IRR defects including when the resulting rate is greater than −1.

Impact of the forecast price on economic results for methanol production from olive waste

The development of circular economies due to the limitation of natural resources is becoming a common strategy of paramount importance among different countries. In Spain, given the strategic nature of its olive industry, trying to value one of its main residuals (olive pomace) alone or together with other residues through its chemical transformation in methanol is a promising research line. One of the key variables that would make the investment advisable or not is the future value of the methanol price. However, most of the literature do not consider its future price volatility on the economic evaluation of the chemical processes. This work bridges that gap by proposing three econometric models based on Unobserved Components to forecast the methanol price over the life cycle plant. Those probabilistic forecasts feed a Monte Carlo simulation that provides an exhaustive investment risk assessment in terms of Net Present Value, Internal Rate of Return and Value at Risk metrics. The results showed the relationship between forecasting models and the investment profitability with an average Internal Rate of Return ranging from 23% to 31%. Additionally, the previous analysis was completed by adding other variables subject to uncertainty (olive pomace feed, capital investment, feedstock price, labor costs and discount rate). In this case, assuming a potential underestimation error up to 100% of the capital cost, the probability of obtaining a profitable investment was significantly reduced ranging the Value at Risk from 48% to 98%.

Average internal rate of return for risky projects

The average internal rate of return (AIRR) fixes many deficiencies associated with the traditional internal rate of return (IRR), including apparent inconsistency with net present value (NPV). The AIRR approach breaks down project NPV into scale (the capital invested) and economic efficiency (the AIRR), and maintains NPV consistency for accept/reject decisions. Here we examine extensions of the AIRR to risky capital asset projects, a domain where the IRR appears intractable. We show that one can uniquely break down a risky NPV into a risk-sensitive project scale and a risk-sensitive extended AIRR, representing risky project efficiency, so that consistency with NPV for accept/reject decisions is maintained in the certainty-equivalent sense, in direct analogy to the deterministic case. This novel breakdown gives managerial insight by helping determine a risky project’s locus of uncertainty, be it the project scale, or economic efficiency, or both. In this way, risky features of competing projects can be explored in more detail, leading to insights substantiating the NPV ranking. We also show that under risk neutrality, the expected AIRR is equal to the AIRR of the expected cash flow, a property that notoriously fails for the stochastic IRR.

Performance and economic viability of the PV system in different climatic zones of Nigeria

This study analyzed the effect of climatic variation on PV systems' performance and economic viability in four climatic zones of Nigeria (warm desert, warm semi-arid, tropical savanna, and monsoon climate). Performance ratio was found to be high in monsoon and tropical savanna climate due to the influence of cool-moist air from the ocean, low temperature, and increased cloud cover in the region. Meanwhile, the least performance ratio was noticed in the warm desert and warm semi-arid climate due to the dusty wind from the Sahara desert, relatively high temperature, and low precipitation in the region. In order to assess the cost-effectiveness and profitability of the solar project in Nigeria, the Levelized cost of electricity (LCOE), net present value (NPV), internal rate of return (IRR), and payback period (PP) were employed. The average LCOE across the climatic zones is 0.21 $/kWh, which is lower compared to the 0.25 $/kWh grid tariff. The average NPV and IRR are found to be $31,164 and 22%, respectively, making the project economically feasible. However, the payback period was found to be ranging from 3.7 to 5.2 years. Finally, the analysis has proven that solar PV technology is economically viable and profitable in Nigeria.

다중 내부수익률에 관한 통람 및 교육학적 제언

Purpose Present Worth (PW) and Internal Rate of Return (IRR) are two popular economic decision criteria in engineering economic analysis, but PW is preferred to IRR because of several deficiencies including multiple internal rates of return (MROR). Research in MROR has mainly focused on two areas: conditions for MROR occurrence and unique positive IRR, and solutions to MROR. This paper discusses MROR problems in depth. Methods In two areas of MROR, main and recent research streams are reviewed and illustrated with numerical examples. Also, a concrete measure to clarify the meaning of AIRR(Average IRR) proposed by Magni(2010) to resolve several problems of IRR is provided. Results Scopes and levels to cover MROR problems in textbooks of engineering economy (EE) field are surveyed and a new pedagogical proposal for instructors to teach MROR problems in EE class is presented. Conclusion Despite several drawbacks including MROR, surveys for managers have consistently shown that substantial practitioners still favor IRR. Results and proposals in this article will be helpful to enhance the study achievement for IRR in EE class of university.

Average rates of return, working capital, and NPV-consistency in project appraisal: A sensitivity analysis approach

In project appraisal under uncertainty, the economic reliability of a measure of financial efficiency such as a rate of return depends on its strong NPV-consistency, meaning that the performance metric (i) supplies the same recommendation in accept–reject decisions as the NPV, (ii) ranks competing projects in the same way as the NPV, (iii) has the same sensitivity to perturbations in the input data as the NPV. In real-life projects, financial efficiency is greatly affected by the management of the working capital. Using a sensitivity analysis approach and taking into explicit account the role of working capital, we show that the average return on investment (ROI) is not strongly NPV-consistent in accept–reject decisions if the working capital is uncertain and changes under changes in revenues and costs. Also, it is not strongly NPV-consistent in project ranking. We also show that the internal rate of return (IRR) is not strongly NPV-consistent and economic analysis may even turn out to be impossible, owing to possible nonexistence and multiplicity caused by perturbations in the input data, as well as to possible shifts in the financial meaning of IRR under changes in the project’s value drivers. We introduce the straight-line rate of return (SLRR), based on the notion of average rate of change, which overcomes all the problems encountered by average ROI and IRR: It always exists, is unique, strongly NPV-consistent for both accept–reject decisions and project ranking, and has an unambiguous financial nature.

Economic and technical assessment of rooftop solar photovoltaic potential in Brownsville, Texas, U.S.A

Localized assessment of solar energy economic feasibility will benefit the structuring of residential solar energy deployment globally. In the U.S. growing interest in rooftop residential solar among city managers has spurred the development of photovoltaic (PV) feasibility maps of the technical and economic solar potential within cities. The City of Brownsville, Texas was interested in evaluating solar feasibility for their city but lacked information to make informed policy decisions on PV development. This paper presents novel and systems approaches for determining the technical and economic feasibility of solar development for homes in the Brownsville using LiDAR and local information. Residential technical and economic potential was assessed by optimizing the internal rate of return (IRR) and an average residential building demand profile to determine ideal size and placement of solar arrays. Results showed that residential structures in Brownsville have the technical potential to generate approximately 11% of the total energy provided by the local utility; however, average IRR was only 2.9% with a payback period of over 15 years. Five neighborhoods in the City of Brownsville were identified with spatially clustered homes that had relatively higher IRRs compared with other areas in the city. Despite the high technical potential, modeled results indicate that perspective home owners interested in solar development may require additional incentives to improve the economic feasibility of PV in Brownsville. This study provides a demonstration of an interdisciplinary systems approach and methodology that can be adopted internationally to evaluate the feasibility of solar development in other areas.

Adopción e impacto de las tecnologías agropecuarias generadas en el Ecuador

El conocimiento de los efectos que tienen las tecnologías en la sociedad es el instrumento esencial para motivar el desarrollo de la investigación, ya que brinda insumos a los tomadores de decisiones y generadores de políticas que permiten proyectar el impacto de futuras inversiones. En Ecuador, el principal centro público encargado de la investigación y desarrollo de tecnologías en el sector agropecuario es el Instituto Nacional de Investigaciones Agropecuarias (INIAP), que desarrolla material genético, alternativas de manejo para incrementar y agregar valor a la producción, alternativas para el manejo del suelo y agua y la conservación de los recursos genéticos. Con el objetivo de estimar la adopción e impacto de las tecnologías agropecuarias que se generan en el país, se analizaron 37 estudios de adopción, impacto y rentabilidad económica de tecnologías generadas por el INIAP, publicados en el período 2007-2017. La tasa de adopción promedio a nivel nacional de las variedades desarrolladas por el INIAP fue del 37%, con una tasa interna de retorno promedio del 33%. Los impactos fueron positivos a nivel económico, ambiental y productivo para los agricultores que adoptaron las tecnologías. Estos resultados sirven de apoyo a los políticos y tomadores de decisiones en el país para el direccionamiento y planificación estratégica de la investigación, que permita el desarrollo de una agricultura sostenible y de referencia para la región.

The economic performance of industrial and commercial rooftop photovoltaic in China

Due to its characteristics of nearby power generation, grid-connection, conversion and use, rooftop photovoltaic power generation has formed the advantages of less investment, flexible, efficient and environmental protection, with broad prospects for development. Therefore, studying its economic performance is of great significance to investment decision and policy improvement. Under the current technical cost and policy conditions of rooftop photovoltaic in China, this paper constructs a cost-benefit analysis model considering the impact of inflation on cash flow. The results show that: For small rooftop photovoltaic in China, first of all, under the existing subsidy price and cost, its investment payback period is short and the risk is low. Secondly, the average internal rate of return is more than 10%, and the levelized cost of electricity is 0.2727–0.5573CNY/kWh, so the economic performance is good. Then, although the subsidy price has been lowered twice in a row in 2018, its economic performance is still relatively good. Finally, in the economic performance analysis of rooftop photovoltaic, besides the influence of power generation capacity, loan interest rate, construction cost and other factors, the time value of capital and inflation are also factors that cannot be ignored.

Defining a Reliable Multi-Period Project Rate of Return. An Alternative to IRR.

In this paper, we lay out theoretical shortcomings of the IRR criteria that have largely dropped out of the finance literature. We discuss the problem of multiple IRRs and non-existent IRR under a new light. We also discuss the financial ambiguity that can arise when interpreting the IRR. Then, we describe two new rate of return metrics proposed by Magni (2010, 2013). These include the Book Average Internal Rate of Return (BAIRR) and the Economic Average Internal Rate of Return (EAIRR). These revised rate of return metrics rely on different assumptions about the pattern of changes to the value of an investment over its economic life. The result is a multi-period rate of return measure that is free of the limitations of the IRR and is consistent with net present value (NPV). The approach links NPV and the rate-of-return notion in an explicit and intuitive way, such that the NPV may be found as a product of the overall invested capital and the project’s expected rate of return (net of the cost of capital). Consequently, for those settings in which a rate of return measure is needed, the two metrics provide alternatives that can be used.

Chisini means and rational decision making: equivalence of investment criteria

A plethora of tools are used for investment decisions and performance measurement, including Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index (PI), Modified Internal Rate of Return (MIRR), Average Accounting Rate of Return (AARR). All these and other known metrics are generally considered non-equivalent and some of them are regarded as unreliable or even naive. Building upon Magni (2010a, 2013)'s Average Internal Rate of Return (AIRR), we show that the notion of Chisini mean enables these tools to be used as rational decision criteria. Specifically, we focus on 11 metrics and show that, if properly used, they all provide equivalent accept-reject decisions and equivalent project rankings. Therefore, the intuitive notion of mean is the founding basis of investment decision criteria.

A review and simulation of business angel investment returns

Business angels are widely recognized as a significant source of entrepreneurial finance, particularly for early-stage businesses. However, rigorous investigation on angel investment performance has been limited. This paper examines investment returns of business angels in addressing the question of whether angel investing generates attractive returns. We review the few published studies which report on more than 100 investment exits to establish baseline returns expectations and clarify returns measurement limitations. We then use data from one of the largest studies of angel returns to populate a Monte Carlo simulation of returns profiles to explore the link between portfolio size and the probability of the desired level of returns. The study reveals that angel deal returns are highly skewed; smaller portfolios have higher average returns but dramatically lower median returns. In contrast with prior studies, our study shows that portfolios with more than 50 investments are required to significantly minimize risk of poor returns and that similar scale is required to maximize returns potential, as smaller portfolios have a lower average internal rate of return (IRR). We show that reinvestment rate is a critical element in measuring angel returns, and we demonstrate the limitations of IRR as a returns metric through the simulation.