Operating Profitableness in Projects with Multiply IRR Values. Reconstruction of Sense

Abstract

For the investment project, a family of replacement credits is built, in each of which one of the IRR values is taken as the interest rate. In all such replacement credits, the areas of operating profitableness of the investor and the recipient are defined as the intervals of the change in the discount rate, where the discounted amounts of interest payments are positive or negative, respectively. In these areas, which have IRR values as their internal or boundary point, the operational profitablenesses of project participants take constant values equal to the corresponding IRR value. For all non-negative values of the discount rate, the operating profitableness of the investor and the recipient have the form of unequivocal piecewise constant functions. Real returns of project participants with multiple IRR values in all intervals of the change in the discount rate between IRR values coincide with their operating profitableness. And only in the edge interval, at discount rates higher than the maximum IRR, the real returns of the participants are determined by the principle of conservation the project’s own profitableness.

Keywords: investment project, credit, profitableness, loan indebtedness , interest payments, NPV, IRR.

JEL Classification: G11, G12, G31, G32, O22