On the Rate of Return and Valuation of Non-Conventional Projects

Abstract

I provide a solution for evaluating non-conventional projects, firstly showing that the well-known modified internal rate of return does not answer correctly what investors want to measure. Even if one correctly uses the net present value criterion for capital budgeting, I show that it fails for non-conventional projects. My contribution is thus twofold: To yield the correct rate of return for non-conventional projects and to allow practitioners to correctly calculate comparable net present values to take correct investment decisions.

Keywords: Project valuation, Rate of return, Non-conventional cash flows, Modified internal rate of return, NPV and IRR

JEL Classification: G11, G31