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Comment: The Unique, Real Internal Rate of Return

Published online by Cambridge University Press:  06 April 2009

Robert Capettini ,
Richard A. Grimlund  and
Howard R. Toole
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Extract

In the June 1978 issue of this Journal, Herbst [2, p. 363] cautioned the reader to beware of a unique, real internal rate of return (IRR) because such a return is “an incorrect measure of the return on investment” for a mixed project. While it is true, as discussed by Teichroew, Robichek and Montalbano (TRM) [4], and now by Herbst, that a mixed project may have a unique IRR, several additional observations developed by TRM should be added to Herbst's discussion. These comments will clarify the implications of Herbst's paper for a decision maker who has a mixed project with a unique real IRR.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 14 , Issue 5 , December 1979 , pp. 1091 - 1094
Copyright
Copyright © School of Business Administration, University of Washington 1979

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References

REFERENCES

[1]Bernhard, R. H. “Unrecovered Investment, Uniqueness of the Internal Rate, and the Question of Project Acceptability.” Journal of Financial and Quantitative Analysis, Vol. 12 (03 1977), pp. 33–38.CrossRefGoogle Scholar
[2]Herbst, A. “The Unique, Real Internal Rate of Return: Caveat Emptor!” Journal of Financial and Quantitative Analysis, Vol. 13 (06 1978), pp. 363–370.CrossRefGoogle Scholar
[3]Norstrø, C. J. “A Sufficient Condition for a Unique Nonnegative Internal Rate of Return.” Journal of Financial and Quantitative Analysis, Vol. 7 (06 1972), pp. 1835–1839.CrossRefGoogle Scholar
[4]Teichroew, D.; Robichek, A.; and Montalbano, M.. “An Analysis of Criteria for Investment and Financial Decisions under Certainty.” Management Sciences, Vol. 12 (11 1965), pp. 151–179.CrossRefGoogle Scholar