Operating Profitableness of Investment Projects. In a Searching a Fictional Rate

Abstract

An investment project is considered as a borrowing project with two participants, an investor and a recipient, each of which has its own profitability. The concept of operating profitableness of participants is described, according to which the IRR is determined by the ratio of the discounted amounts of interest payments and loan indebtedness previously allocated from the project payment stream. This establishes the economic meaning of IRR as a ratio of income to the resources used to obtain it. It is shown that in projects with a single (simple or multifold) IRR value, the operational profitableness of participants is determined by this value, but at different intervals of the change in the discount rate. The concept of real profitability of participants is introduced, which, with positive NPV values, is identified as the profitability of the investor, and with negative values, as the profitability of the recipient. Indicators of real profitability of project participants with a single IRR value are built. The possibility of constructing indicators of operational and real profitability of participants in projects with multiple IRR values is discussed.

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

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