Dynamical Internal Rate of Return for the Investment Project

Abstract

A new indicator of profitableness (DIRR) of the investor and recipient of the investment project is proposed, which is a generalization and development of the concept of internal rate of return (IRR). It is formed in the form of the sum of the cost of the participant's capital and the project's own profitableness, which is determined by the ratio of NPV to the value of the aggregate discounted loan debts of the investor and the recipient accumulated in the project. In projects with multiple IRR value the indicator DIRR is described by a continuous function of discount rate and smoothes the gaps in the real operating profitableness indicator. For projects with a single (simple or multiple) value of IRR, there is a complete coincidence of DIRR with the real operating profitableness of the participant. An example of building a DIRR in a project with three simple and one double IRR values is considered.

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

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