Interval and Fuzzy Average Internal Rate of Return for Investment Appraisal

Fuzzy Sets & Systems 2014, 257,217-241.

35 Pages Posted: 9 Jun 2012 Last revised: 22 Sep 2015

See all articles by Maria Letizia Guerra

Maria Letizia Guerra

University of Bologna - Department of Statistics

Carlo Alberto Magni

Università degli studi di Modena e Reggio Emilia (UNIMORE) - School of Doctorate E4E (Engineering for Economics-Economics for Engineering)

Luciano Stefanini

University of Urbino Carlo Bo - Faculty of Economics

Date Written: June 8, 2012

Abstract

In investment appraisal, uncertainty can be managed through intervals or fuzzy numbers because the arithmetical properties and the extension principle are well established and can be successfully applied in a rigorous way. We apply interval and fuzzy numbers to the Average Internal Rate of Return (AIRR), recently introduced for overcoming the problems of the traditional Internal Rate of Return (IRR). In the setting of interval and fuzzy arithmetic, we establish relations between the interim capitals invested, the profits and the cash flows, which are the ingredients of the AIRR, and shed lights on the different ways uncertainty propagates depending on which variable is known and which one is derived. The relations between fuzzy AIRR and fuzzy Net Present Value are also investigated.

Keywords: investment, uncertainty, fuzzy, rate of return, AIRR, net present value

JEL Classification: C00, C30, C63, G10, G11, G12, G31

Suggested Citation

Guerra, Maria Letizia and Magni, Carlo Alberto and Stefanini, Luciano, Interval and Fuzzy Average Internal Rate of Return for Investment Appraisal (June 8, 2012). Fuzzy Sets & Systems 2014, 257,217-241., Available at SSRN: https://ssrn.com/abstract=2080250 or http://dx.doi.org/10.2139/ssrn.2080250

Maria Letizia Guerra

University of Bologna - Department of Statistics ( email )

Bologna, 40126
Italy

Carlo Alberto Magni (Contact Author)

Università degli studi di Modena e Reggio Emilia (UNIMORE) - School of Doctorate E4E (Engineering for Economics-Economics for Engineering) ( email )

Italy

Luciano Stefanini

University of Urbino Carlo Bo - Faculty of Economics ( email )

Via Saffi 42
61029 Urbino
Italy

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
184
Abstract Views
1,380
rank
179,292
PlumX Metrics