1. UNIQUENESS OF THE INTERNAL RATE OF RETURN: A GENERALISATION.
- Author
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Flemming, J. S. and Wright, J. F.
- Subjects
RATE of return ,PRESENT value ,DISCOUNT prices ,CAPITAL investments ,INTERNAL rate of return - Abstract
The article examines the uniqueness of the internal rate of return. In the September 1969 issue of the "Economic Journal," Professors J.K. Arrow and D. Levhari demonstrated in their article "Uniqueness of the Internal Rate of Return with Variable Life Investment" that for any project whose life can be costlessly truncated to maximize its present value (PV) at each discount rate there will be only one rate at which this maximized present value is zero, i.e., the internal rate of return is unique. More generally they prove that the maximized PV is a monotonic decreasing function of the discount rate. The authors result show that, whatever the previous pattern of the rates a change in expectations which causes them all to be revised in the same "direction " will alter the present values of all costlessly terminable projects including the residues of extant investment in a common direction.
- Published
- 1971
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