USE AVERAGE INTERNAL RATE OF RETURN (AIRR) AND NOT INTERNAL RATE OF RETURN (IRR) PART 3

Dear Karnen,

Please find enclosed my latest paper on AIRR, recently published in the Journal of Mathematical Economics.   Section 8, specifically devoted to practitioners, shows three different examples, including HomeNet’s example from Berk and DeMarzo’s textbook.

I welcome your comments and thank you very much for your attention

Best regards

Carlo Alberto Magni, Associate Professor
Department of Economics, University of Modena and Reggio Emilia
 
The Engineering Economist – Area Editor

I forward Prof. C.A. Magni’s above paper to Prof. Peter DeMarzo to seek his comments.

Personally, I see Magni’s paper on AIRR is quite comprehensive and convincing. Hi Prof. Peter DeMarzo,

I sent herewith one article written by Prof. C.A. Magni, in which he
shows AIRR implementation by using the HomeNet’s example taken from
your book (see page 70 and 71).

Though of course, we could just jump to NPV, yet, by putting something
into “rate of return” (in %) it is much easier to get the point across
to the other side of the table in many project analysis discussions.
It works for somebody without or with short finance course in the
backdrop.

Though I see a lot of Corporate Finance traditional textbooks
explaining away on how to get the IRR, but it is not really touching
the bone of this IRR. One article back in 1976 by C.B. Akerson, I
guess, appropriately quite well in giving us a better idea about what
this IRR is. From this paper, IRR seems this concept is built around
the savings bank account analysis, in which the intermediate value is
pretty clear to forecast.

Akerson, C.B., The Internal Rate Of Return in Real Estate Investments,
A Research Monograph, Prepared for the American Society of Real Estate
Counselors, 1976.

Looking forward to hearing your opinion on this.

Thanks
Karnen

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