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http://dx.doi.org/10.11627/jkise.2017.40.1.050

An Economic Analysis with the Productive Rate of Return  

Kim, Jin Wook (Changwon National University)
Son, Immo (Taeguk Precision)
Shin, Jaiwook (Volvo)
Publication Information
Journal of Korean Society of Industrial and Systems Engineering / v.40, no.1, 2017 , pp. 50-56 More about this Journal
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
Net Present Value; Cash Flow Table; Profit and Loss Statement; External Rate of Return; Internal Rate of Return; Productive Rate of Return;
Citations & Related Records
Times Cited By KSCI : 3  (Citation Analysis)
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