DOI QR코드

DOI QR Code

An Economic Analysis with the Productive Rate of Return

생산투자수익률을 적용한 생산투자사업의 경제성 분석

  • Received : 2016.12.07
  • Accepted : 2017.02.27
  • Published : 2017.03.31

Abstract

The IRR (internal rate of return) is often used by investors for the evaluation of engineering projects. Unfortunately, it is widely known that it has serial flaws. Also, External rate of returns (ERRs) such as ARR (Average Rate of Return) or MIRR (MIRR, Modified Internal Rate of Return) do not differentiate between the real investment and the expenditure. The PRR (Productive rate of return) is faithful to the conception of the return on investment. The PRR uses the effective investment instead of the initial investment. In this paper, we examined two cases of the engineering project. the one is a traditional engineering project with financing activity, another is the project with R&D. Although the IRR has only one value, it overestimates or underestimate profitabilities of Engineering Projects. The ARR and the MARR assume that a returned cash reinvest other projects or assets instead of the project currently executing. Thus they are only one value of a project's profitability, unlike the IRR. But the ARR does not classify into the effective investment and non-investment expenditure. It only accepts an initial expenditure as for an investment. The MIRR also fails to classify into the investment and the expenditure. It has an error of making a loss down as the investment. The IRR works as efficiently as a NPW (Net Present Worth). It clearly expresses a rate of return in respect of an investment in an engineering project with a loan. And it shows its ability in an engineering project with a R&D investment.

Keywords

References

  1. Kim, J.W. and Lee, C.S., A Study on Rate of Returns in Engineering Projects, Journal of Society of Korea Industrial and Systems Engineering, 2008, Vol. 31, No. 3, pp. 74-79.
  2. Kim, J.W., Kim, K.-W., and Kim, S.G., A Study on the Calculation of Productive Rate of Return, Journal of Society of Korea Industrial and Systems Engineering, 2015, Vol. 38, No. 3, pp. 95-99. https://doi.org/10.11627/jkise.2015.38.3.95
  3. Kim, J.W., Lee, C.S., and Kim, J.-K., A Study on the Real Rate of Return in Real Investment, Journal of Society of Korea Industrial and Systems Engineering, 2009, Vol. 32, No. 4, pp. 124-127.
  4. Lee, S.-H., Park, C.-S., Jung, J.-Y., and Kim, J.-K., A Study on Development and Economic Analysis of Recoverable Folding Multistage Plastic Box, Journal of the Korean Institute of plant Engineering, 2013, Vol. 18, No. 2, pp. 21-30.
  5. Lin, S., The Modified Internal Rate of Return and Investment Creterion, The Engineering Economist, 1976, Vol. 21, No. 4, pp. 237-248. https://doi.org/10.1080/00137917608902796
  6. Magni, C.A., Average Internal Rate of Return and Investment Decisions : A New Perspective, Journal of the Society of Korea Industrial and Systems The Engineering Economist, 2010, Vol. 55, pp. 150-180.
  7. Magni, C.A., Average Internal Rate of Return and Investment Decisions : A New Perspective, Journal of the Society of Korea Industrial and Systems The Engineering Economist, 2011, Vol. 56, pp. 140-169.
  8. Shin, J., A case study on the economic evaluation of productive project with R&D cost, [Master's Thesis], [Changwon, Korea] : Changwon Nat'l University, 2016.
  9. Solomon, E., The Arithmetic of Capital-Budgeting Decision, Journal of Business, 1956, Vol. 29, No. 2, pp. 124-129. https://doi.org/10.1086/294102
  10. Son, I., A Case Study on the Investment analysis of New Machining Center Introduction, [Master's Thesis], [Changwon, Korea] : Changwon Nat'l University, 2014.